Aurelia Butler

Inflation in the world’s rich economies has hit a 25-year high, fuelling concerns about the rising cost of living for households and increasing pressure on central banks to raise interest rates.The annual pace of consumer price growth in the OECD group of developed nations hit 5.8 per cent in November according to data released on Tuesday, up from just 1.2 per cent in the same month the previous year and the highest rate since May 1996.The increase was driven by energy prices, which soared by 28 per cent, up more than three percentage points from the previous month to the highest rate since June 1980. Food price inflation also picked up strongly to 5.5 per cent, from 4.6 per cent in the previous month.The data came as the incoming governor of Germany’s central bank warned that inflation could remain high for longer than economists expect. Joachim Nagel, who succeeded Jens Weidmann as Bundesbank president and a member of the European Central Bank’s governing council this week, said: “Citizens have considerably less money left in their wallets . . . Many people are concerned about this loss of purchasing power.”He said this raised several questions, including: “Is the very loose monetary policy still appropriate? If so, for how much longer?”In the US, the eurozone and the UK, inflation is running at more than double the 2 per cent target set by their central banks.Eurozone inflation hit 5 per cent in the final month of last year, flash figures released last week showed. US figures for December set to be released on Wednesday are expected to show an increase to 7 per cent according to economists polled by Reuters. In the UK, consumer prices rose 5.1 per cent in November. The world’s leading central banks have indicated that they are likely to start tightening monetary policy in the coming months. The Bank of England raised its policy rate for the first time in three years in December and the US Federal Reserve has warned that it may have to increase rates more quickly than previously planned. The European Central Bank announced in December that it would halt its pandemic-era bond purchases in March.Several European governments have stepped in to mitigate the impact of steeply-rising energy costs. France, Spain and Italy have all pledged aid to cushion the hit for poorer households. Last week Christian Lindner, the new German finance minister, vowed to do the same. Speaking on Tuesday, he said: “Many people are looking at the inflationary trends with concern,” adding that the German government was “closely watching the debate”.

However, some economists expect inflation to moderate later this year. Ben May, economist at Oxford Economics, said that the pace of price growth in the US and eurozone was almost at its peak, while in Canada and the UK it would peak in April. Consumer price growth in advanced economies “will fall sharply in 2022”, he said, reflecting a combination of weaker energy costs and core inflation.Eurozone inflation “is likely to have topped out at the end of 2021”, said Silvia Ardagna, economist at Barclays. However, she added that the record level reached by producer prices in most countries in November “suggests that inflationary pressures may persist in the coming months as companies may eventually pass the increase in production costs on to consumers”. More

Inflation across the 19-country euro zone rose by a record 5% last month but the ECB has downplayed that surge, blaming energy costs and insisting that inflation will settle back below its 2% target by year-end even without policy tightening.Nagel challenged that narrative, saying the recent rise in inflation was not just temporary and warning that price growth could continue to come in higher than expected.”It’s true that high inflation rates can be attributed to special effects that expire automatically. But not entirely,” Nagel said. “I see a danger that inflation could remain high for longer than expected.” He stressed continuity with outgoing Bundesbank president Jens Weidmann, who quit with five years of his second term left after unsuccessfully fighting the ECB’s ultra-easy policy for a decade, and warned that inflation hurts the poorest.”The people of Germany rightly expect the Bundesbank to be a vocal advocate of the stability culture. I can assure you: it will remain so,” he said.Speaking at the ceremony, ECB President Christine Lagarde said euro zone citizens worried about rising prices can trust the ECB to stabilise inflation.”We understand that rising prices are a concern for many people, and we take that concern very seriously,” Lagarde said.”But people can trust that our commitment to price stability is unwavering, which is critical for the firm anchoring of inflation expectations and for confidence in the currency.”The ECB last month laid out plans to continue asset purchases for as long as necessary and keep interest rates at record lows for even longer, pressing on with a policy aimed at supporting inflation that was inaugurated nearly a decade ago.OPPOSITIONWeidmann opposed that December decision but was outvoted by policy doves who hold a comfortable majority in the ECB’s 25-member Governing Council. The Bundesbank and other policymakers in Germany, the euro zone’s economic powerhouse, have traditionally taken a tough stance on inflation.His successor, who will head the central bank for eight years, said the inflation outlook remains extraordinarily uncertain and that monetary policy may need to respond if actual outcomes beat expectations. “For all the uncertainty one thing is clear: if price stability requires it, the ECB Governing Council must act and adapt its monetary policy,” Nagel, 55, said. While Weidmann was among just five policymakers who opposed December’s decision, sources close to the discussion said at least another five could change sides if inflation continues to beat expectations, as it has over the last year.Earlier on Tuesday, ECB chief economist Philip Lane argued that inflation will fall sharply this year and come in below the bank’s 2% target both next year and 2024. Until last year, when the ECB predicts inflation was 2.6%, it had undershot the target for nearly a decade. It sees inflation at 3.2% this year. Lane dismissed warnings about upside risks, arguing that wage growth, a precondition for durable inflation, remains anaemic, suggesting that companies are not adjusting their price and wage setting behaviour. More

Lithuania is under pressure from China https://www.reuters.com/world/asia-pacific/china-downgrades-its-diplomatic-ties-with-lithuania-over-taiwan-issue-2021-11-21 which claims democratically ruled Taiwan as its own territory, to reverse a decision last year to allow the island to open a de-facto embassy in Vilnius under its own name.China has downgraded diplomatic ties with Vilnius, and is pressuring companies, such as German car parts giant Continental to stop using Lithuanian-made components. It has also blocked Lithuanian cargos from entering China.Taiwan last week announced plans to set up a separate $200 million fund https://www.reuters.com/world/europe/taiwan-set-up-200-mln-fund-invest-lithuania-amid-dispute-with-china-2022-01-05 to invest in Lithuanian industries and boost bilateral trade as it tries to fend off China’s diplomatic pressure on the Baltic state.”The investment and credit funds will help us strengthen the cooperation,” Taiwan’s National Development Council Minister Kung Ming-hsin told an online news conference.The credit fund will focus on developing semiconductor talent and facilitating semiconductor development, as well as biotechnologies, satellites, finance and scientific research, said Kung.Lithuania’s Economy and Innovations Minister Ausrine Armonaite said her country planned to open a trade representation office in Taiwan in the spring.”Taiwanese companies are in need of laser projects, hopefully our laser companies will soon find partners in Taiwan and we will be very happy to facilitate the partnership”, she said.Taiwanese representations in other countries, except the unrecognized Somaliland, are named after Taiwan’s capital Taipei.U.S. diplomats have expressed strong support for Lithuania, calling China’s pressure “economic coercion”.Lithuania’s Foreign Minister said he would discuss the Chinese pressure with his European Union counterparts on Friday. More