Aurelia Butler

“No one is happy when inflation is running at 4% or 5% when our goal is 2%,” Clarida said during a conversation with Cleveland Fed President Loretta Mester. “This is not a success, this year, and I wouldn’t consider a repeat next year of inflation at this level a success.” Several Fed officials, including Fed chair Jerome Powell, have said inflation is likely to persist for longer than they initially expected. Policymakers will discuss in December whether it might be appropriate to end their bond purchases a few months earlier than they are currently on pace for, Powell said during a Senate hearing earlier on Tuesday. Clarida, who did not comment on the Fed’s taper plans on Tuesday, said the central bank has met its inflation target and noted that bringing down inflation will be key to keeping inflation expectations anchored. He said the Fed will also need to achieve its maximum employment mandate before raising interest rates. More

The emergence of the Omicron variant of coronavirus could mean inflation remains high for longer than expected if it prevents consumers switching their spending from goods to services and prolongs disruption to global supply chains, according to a Bank of England policymaker.Catherine Mann, who joined the BoE monetary policy committee in September, has so far been one of its more dovish voices and voted with the majority to leave interest rates on hold at 0.1 per cent in November, despite surging inflation.But her comments on Tuesday, at an event hosted by Barclays, suggest she shares some of the concerns of other MPC members that inflation could remain above the BoE 2 per cent target for longer than previously expected if the central bank fails to tighten policy.The October consumer price index rose 4.2 per cent from one year earlier, as inflation reached its highest level in almost a decade.Mann said that with information on Omicron only just starting to come in, it was “premature to even talk about timing” of any interest rate rise, let alone about the scale of the BoE’s first move.The arrival of the new variant could hurt consumer confidence, resulting in slacker demand, and policymakers would need to examine a range of incoming data before deciding whether to act, she added.But Mann also underlined the risk that Omicron could lead pressures on global supply chains to last for longer than had been hoped, such that the surge in goods prices recorded in recent months might not subside as early as the BoE’s November forecasts assumed.Her warning echoed comments made by Jay Powell, the US Federal Reserve governor, who told lawmakers on Tuesday that rising Covid-19 cases and the new Omicron variant could put the economic recovery at risk and increase the uncertainty around inflation. He nonetheless signalled his support for a quicker withdrawal of the Fed’s massive asset purchase programme.Mann said price pressures could be more persistent if countries pursuing zero Covid strategies, such as China, shut down manufacturing plants in response to the discovery of Omicron cases, causing a “bullwhip effect” to ripple through global supply chains.In addition, consumers might continue spending on goods in preference to services if new risks around the virus made them reticent about going out.“We expected the rotation away from goods to be an ingredient in the moderation of goods price inflation we see today,” said Mann. “If Omicron basically puts us back holed up in our houses . . . we may not be seeing that.”Mann also pointed to several factors that could bring inflation down from its current high levels over the course of the next year, including the waning effects of US economic stimulus on global demand and an easing in shipping rates.But she also said the UK labour market was “tight and expected to stay that way” and that policymakers were “very conscious of the prospects for the tight labour market to translate into wage inflation”.Other MPC members, including BoE chief economist Huw Pill, have said more explicitly that the conditions now exist to justify a vote for higher interest rates, but have been careful not to give any indication of whether the first move will come in December, as markets expect, or later. More

China will cut the amount of money it supplies to Africa over the next three years by a third in a sign of Beijing’s growing caution over the continent’s indebtedness.In a video address to the triennial Forum on China-Africa Cooperation being held in Senegal, Chinese president Xi Jinping pledged $40bn to African countries in investment, credit lines, trade finance and special drawing rights.While this represents a cut from the $60bn pledged at the previous two Focac summits, Xi emphasised his commitment to what he called a “win-win” relationship.In addition, China’s president promised 1bn Covid-19 vaccine doses, although he provided no timeframe. He also pledged to step up co-operation on ​​solar, wind and other renewable investments and to simplify procedures in order to increase agricultural imports from African states. Chidi Odinkalu, senior manager for Africa at the Open Society Foundations, said the reduced financial pledge showed that Beijing no longer had to try so hard in Africa. “China’s strategic objective was to get a foot in the door. Now that it’s in the door, it can choose to dictate the terms,” he said. He criticised some African governments for relying too heavily on loans from Beijing. “The volume of credit that some of them have binged on makes them dependent beyond any sensible notion of sovereignty,” he said.Carlos Oya, an expert on China-Africa relations at Soas, University of London, said Xi’s vaccine pledge was significant given the failure of western initiatives to supply the continent. “A billion doses of vaccine is a big pledge,” he said. “If they pull that off that would make the rest of the world look awful.”Oya agreed that the cut in proposed finance signalled “concern about the ability of African countries to absorb that much debt”.The IMF categorises more than 20 African countries as being at high risk of debt distress or already in debt distress, a list that has grown because of the Covid-19 pandemic.Chinese loan commitments to Africa peaked in 2016 at $29.5bn, but dropped to $7.6bn in 2019, the latest available data, according to the Chinese Loans to Africa Database, compiled by scholars at Johns Hopkins University.“In the past, lots of African countries borrowed money to grow the economy, they believed they could service the debt if the economy kept growing,” said Kai Zhu, head of the China-Africa corridor at South Africa-based Absa bank. “Covid brought fundamental change to the base case and we have seen some debt restructuring and debt-relief discussions.”Last year, Zambia, which has borrowed heavily from China as well as from commercial lenders, became the first African country to default on its eurobond loans. João Lourenço, president of Angola, the biggest African borrower from China, recently told the Financial Times that Beijing was unlikely to make more concessions after agreeing relief on about $20bn of debt. Ethiopia, another big recipient of Chinese loans, has seen its economic prospects dim after descending into civil war. It has also sought debt relief.A white paper from the State Council, China’s cabinet, published on the eve of the Focac meeting, confirmed the Chinese government’s shift of focus. “China is promoting a new development paradigm with domestic economy and international engagement providing mutual reinforcement, and the former as the mainstay. China’s development will create more opportunities for Africa’s development,” it said. It pledged to carry over Chinese public health assistance during the pandemic into longer-term co-operation to improve public health systems in Africa. Despite signs of caution, China remains the biggest bilateral lender to the world’s poorest countries, including many in sub-Saharan Africa, where it accounts for about a fifth of all lending. China has also been the biggest bilateral participant in the G20’s debt service suspension initiative, launched last year to help poorer countries fund their pandemic response. But critics, including David Malpass, president of the World Bank, accuse it of a lack of transparency in debt contracts.China has also been accused by some, including in Africa, of seeking to ensnare governments in a debt trap. Beijing has dismissed such claims, saying that it has never sought to transform debt into ownership of particular African assets.Additional reporting by Jonathan Wheatley in London More

Inflation in the eurozone rose to 4.9 per cent in November, a record high since the single currency was created more than two decades ago, prompting policymakers and economists to warn that price pressures are likely to persist for longer than expected.Driven by soaring energy prices, the increase in eurozone inflation — as measured by the harmonised index of consumer prices — outstripped the 4.5 per cent expected on average by economists polled by Reuters. The rise is likely to put more pressure on the European Central Bank to reduce its monetary stimulus.Some investors said the ECB seemed too relaxed about rising prices. “It may be wishful thinking on the part of ECB president [Christine] Lagarde when she declares that price pressures won’t run out of control — they already are and it’s difficult to follow the argument that it will abate soon,” said Charles Hepworth, investment director at GAM Investments.Jens Weidmann, the outgoing president of the Bundesbank, on Tuesday warned the ECB to be “wary of any pressure to maintain its very loose course longer than the price outlook dictates”.The German central banker’s comments came as a 6 per cent rise in German consumer prices, the fastest increase for almost 30 years, is causing political unease. Germany’s incoming finance minister Christian Lindner wrote on Twitter that “inflation gives rise to legitimate concerns”, adding: “In the case of currency devaluation, we’ll observe how it develops after the pandemic.”The ECB has tried to calm anxiety about rising prices by saying many one-off causes of inflation such as surging energy prices, supply chain bottlenecks and the reversal of a German sales tax cut will fade next year.While a surge in coronavirus cases and the spread of a new variant are causing more uncertainty over the economy, there are signs that ECB officials doubt whether inflation will fall as fast as they thought. “In 2022, bottlenecks may last longer than expected,” Luis de Guindos, vice-president of the ECB, said in an interview with Les Echos published on Tuesday. “There’s a risk that inflation will not go down as quickly and as much as we predicted.”A 27.4 per cent rise in energy prices in November from a year earlier was the biggest driver of inflation in the bloc’s 19 countries. But the prices of food, services and goods all rose faster than the ECB’s 2 per cent target.Core inflation, which the ECB monitors for underlying pressures because it strips out more volatile energy, food, alcohol and tobacco prices, climbed to 2.6 per cent, up from 2 per cent a month earlier. Some of the increase in services prices was due to a lower weighting of package holidays in the official inflation basket to reflect the drop in tourism during the pandemic. Luigi Speranza, chief global economist at BNP Paribas, said: “It is quite difficult to ignore figures like those we see today, so there will be growing demands for compensation in higher wages for workers.”Economists are struggling to assess the impact on inflation of a record surge in coronavirus cases and the spread of the Omicron variant in Europe. Jack Allen-Reynolds, senior Europe economist at Capital Economics, said the variant was likely to reduce overall inflation due to lower oil prices but could push up goods prices by adding to supply chain logjams created by the pandemic. He predicted eurozone inflation would only fall below the ECB’s 2 per cent target in late 2022.The ECB will issue new inflation forecasts on December 16 and is widely expected to increase them from those issued in September, when it predicted a fall from 2.2 per cent this year to 1.7 per cent next year and 1.5 per cent in 2023. More