Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank president Christine Lagarde said rapid wage growth was already showing signs of slowing in the eurozone, striking a dovish note on the potential for interest rate cuts even as the central bank kept monetary policy on hold.“The disinflation process is at work,” the central banker said at a press conference after the ECB kept its key interest rate on hold at a record high of 4 per cent and signalled inflation was falling in line with its expectations.Lagarde said a pick-up in inflation in December had been “weaker than expected” and forecast that price pressures would “ease further over the course of the year”. While rapid wage growth and lower productivity were “keeping price pressures high”, she said there had already been a slight decline in wage growth that was “directionally good from our perspective”. Lower profit margins suggested companies were absorbing increased labour costs rather than passing them on to consumers by raising prices.Lagarde outlined both upside and downside risks to inflation, but said it could “decline more quickly in the near term” if energy prices continued to drop in line with lower market expectations for oil and gas prices.The ECB was observing the supply chain disruption caused by the conflict in the Middle East “very carefully”, Lagarde said, adding: “Shipping costs are increasing and delivery delays are increasing.” The euro fell after Lagarde spoke, slipping 0.5 per cent against the dollar to $1.0833, as investors judged her comments to have opened the door to a potential rate cut in April. Germany’s two-year bond yield fell 0.09 percentage points to 2.62 per cent.Investors have been watching for clues from central bankers on how fast inflation is likely to fall and when borrowing costs could start to be lowered.Dirk Schumacher, a former ECB economist now at French bank Natixis, said her comments were “slightly more dovish than expected” but he still thought the ECB was unlikely to cut rates before June.“Given the focus on wages and how they have put this so prominently in the shop window, I don’t think they can cut without evidence of at least a moderation of wage growth, which they won’t have before June.” Lagarde said there had been a consensus among ECB rate-setters that it was “premature to discuss rate cuts”. But she also stuck to her comments last week that such a move was “likely” in or by the summer, saying: “We need to be further along in the disinflation process” before being confident inflation will fall to the ECB’s 2 per cent target. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said another “downside surprise” to core inflation could push the ECB to cut rates before the summer. Western central banks are becoming more confident they could soon start cutting interest rates as inflation falls closer to their targets. But they are weighing the risk of a resurgence in price pressures if they lower borrowing costs too early against the danger of doing unnecessary damage to growth and jobs by waiting longer than needed.Rate-setters in Japan, Canada and Norway also left policy unchanged this week, with similar outcomes expected from the US Federal Reserve and the Bank of England next week.Economists have already cut their forecasts for eurozone growth and inflation this year after weak data on industrial production, producer prices, business orders and retail sales pointed to a slowing economy. Lagarde said the bloc’s economy was “likely to have stagnated” in the fourth quarter and recent data “signal weakness” at the start of this year.Yet some still worry high wage growth and supply chain disruption caused by attacks on ships in the Red Sea may keep inflation high. Eurozone inflation is expected to fall from 2.9 per cent in December to 2.7 per cent in January when updated price data is released next week, according to Barclays’ forecasts.The gloomy outlook for the eurozone economy was underlined by the Ifo Institute’s closely watched survey of German companies. Its business climate index unexpectedly fell 1.1 points to 85.2, its lowest level since shortly after the pandemic hit in May 2020. Economists polled by Reuters had forecast an increase to 86.7.Additional reporting by Mary McDougall More

“The declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions,” the ECB said.With Thursday’s decision, the ECB left the rate it pays on bank deposits, the benchmark for borrowing costs in the euro zone, at 4.0% – its highest level since the ECB was created – and repeated it would stay there for some time.”The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner,” the ECB said. “Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”Before the announcement, investors were betting on the ECB to start cutting that rate as soon as April and to continue doing so at each meeting until the end of the year to leave it at 2.50%-2.75% in December. But most ECB policymakers have been trying to cool the market’s enthusiasm, saying more data was needed, particularly about wage growth.The ECB’s two other rates were also left unchanged. Banks will be charged 4.50% to borrow at the ECB’s weekly auctions and 4.75% at daily ones.Attention will now turn to ECB President Christine Lagarde’s 1345 GMT news conference. More

Analysts at Stifel said the call was “reassuring” following recent warnings from peers like Nike (NYSE:NKE) and JD (NASDAQ:JD) Sports, adding that “the likelihood of a warning looks lower” for Adidas (OTC:ADDYY). On Wednesday, Puma fell around 6% after announcing worse-than-expected guidance for 2024.Adidas declined to comment on the share price move. It will report full-year results on March 13.By 1141 GMT, the shares were up 4.8%, leading gainers on Frankfurt’s DAX equity benchmark index. More

(Reuters) – The new year has brought some new math for anyone running their retirement planning numbers.Social Security checks are a bit higher this month, thanks to the annual cost-of-living adjustment (COLA) – but higher Medicare Part B premiums will take a bite out of the increase. Meanwhile, new protections from high prescription drug out-of-pocket costs are in place, along with some new rules governing required minimum distributions from retirement accounts. And we have reached a milestone on the age when you can claim your full Social Security benefit.Let’s take a look at five important retirement changes that take effect this month.THE COLA KICKS INThe annual Social Security COLA is landing in bank accounts this month. The inflation adjustment is pegged to changes in consumer prices in the broad economy. With inflation cooling off, the 2024 COLA is 3.2%, much lower than the historic 8.7% 2023 adjustment, but still ahead of the historical average of 2.6%.Inflation is an ever-present concern for retirees – not so much because of year-to-year fluctuations like we have just experienced, but due to the way higher prices compound and erode spending power over the course of retirement. The Social Security COLA provides critical protection, although it is most meaningful for middle- and lower-income retirees. The program replaces a higher share of their pre-retirement income than it does for more affluent retirees. That means a greater share of their retirement income will be protected by the COLA. MEDICARE PREMIUMS JUMPThe standard monthly premium for Medicare Part B (which covers outpatient services) has been volatile over the past few years, reflecting the impact of the pandemic and the growing cost of expensive drugs administered by healthcare providers.This year, the Part B premium jumped by a hefty 5.9%, to $174.70. If you receive both Medicare and Social Security benefits, the Part B premium is deducted from your check, so the dollar amount of the increase impacts your net COLA. This year’s premium increase amounts to $9.80 per month, and the impact is felt most sharply by people who have modest or low benefits. For example, for someone with a monthly benefit of $1,000, the net COLA this year is just 2.2%. But if your benefit is $3,500, you will hardly notice the reduction – your net increase is 2.9%NEW PRESCRIPTION DRUG COST PROTECTIONSFor the first time, seniors with Medicare Part D prescription drug coverage will be protected by a cap on total out-of-pocket costs. Provisions of the Inflation Reduction Act (IRA), signed into law in 2022 by President Joe Biden, will effectively act as an out-of-pocket cap of $3,300 this year. In 2025, an across-the-board $2,000 annual cap on out-of-pocket costs for drugs under Medicare Part D will take effect.These protections will immediately help patients taking expensive drugs for conditions such as cancer. Last year, patients taking drugs such as Lynparza, Ibrance and Xtandi faced annual out-of-pocket costs around $12,000, according to KFF, a nonprofit organization focused on health policy. NEW RULES FOR REQUIRED MINIMUM DISTRIBUTIONSHave you reached the age yet when you must start drawing down funds from your tax-deferred savings? Required Minimum Distributions (RMDs) have been a moving target lately. The U.S. Congress bumped up the starting age for RMDs in 2020 to 72 from 70, and raised it again last year, to 73. And the minimum age will continue to rise, gradually, to 75 by 2033. The requirement dates vary according to your age, so consult this IRS page to understand your personal RMD deadlines.Most financial services firms can calculate RMDs for you, but the penalty for failing to take them is ultimately yours. The penalty for failing to take an RMD on time is 25% of the amount by which your withdrawal fell short of the required minimum. The exceptions for RMDs include 401(k) accounts at a firm where you still work, and Roth IRAs. New for this year: Roth(k) accounts held within a workplace plan also are exempted from RMDs.THE HIGHER RETIREMENT AGE: WE’RE ALMOST THEREThe Full Retirement Age (FRA) is the point when you can claim Social Security and receive 100% of the benefit you have earned. It is a critical feature of the program, since you can claim a retirement benefit as early as 62, or wait as late as age 70; your monthly benefit amount will be higher – or lower – depending on your timing. Reforms signed into law back in 1983 have been gradually increasing the FRA from 65 to 67. The idea was to lift the FRA over time in order to avoid any sudden impact on people close to retirement. But the change is now nearly complete; the FRA is 67 for workers born during or after 1960. For them, the higher FRA is equivalent to an across-the-board benefit cut of roughly 13%.Are you turning 65 this year? Happy birthday – your FRA is 66 and 10 months. The opinions expressed here are those of the author, a columnist for Reuters. More

NEW YORK (Reuters) -Comcast’s quarterly revenue topped Wall Street estimates on Thursday, as growth in its streaming and theme parks businesses, including a widely watched NFL playoff game, more than offset further losses of broadband subscribers. Revenue rose 2.3% to $31.25 billion in the fourth quarter, beating analysts’ estimates of $30.51 billion, according to LSEG data.Shares of the media giant rose more than 4% in trading before the bell.Comcast (NASDAQ:CMCSA) lost 34,000 broadband customers in the quarter, less than the loss of 61,000 customers that had been forecast, according to FactSet but exceeding the 18,000 broadband customers it lost in the previous quarter. During the company’s October call with investors, finance chief Jason Armstrong had said it expected “somewhat higher” broadband subscriber losses in the fourth quarter.The company has faced pressure from wireless carriers such as Verizon (NYSE:VZ) and T-Mobile, which offer broadband services that target lower-income customers. Revenue at the company’s Peacock streaming service rose 56.5% from a year earlier, surpassing $1 billion in quarterly revenue for the first time to $1.03 billion. Paid subscribers increased by 3 million in the fourth quarter, to 31 million.The company has been investing in live programming in an effort to draw more viewers to Peacock. This month, Peacock was the first streaming service to exclusively air an NFL playoff game. The Kansas City Chiefs and the Miami Dolphins game averaged 23 million viewers and became the most-streamed event in U.S. history.Comcast reported a 5.7% rise in revenue in its content and experiences segment, which includes NBCUniversal, to $11.5 billion.Hits like “Oppenheimer”, “Super Mario Bros. Movie” and “Fast X” drove Comcast’s Universal Pictures to the number 1 spot at the worldwide box office for 2023 – the first time since 2015 that Walt Disney (NYSE:DIS) was not the leader. Revenue in its theme parks business rose 12.2%, to $2.37 billion, boosted by attendance at the Osaka, Japan and Hollywood, California parks.The company raised its dividend by $0.08, to $1.24 per share on an annualized basis for 2024. More

NEW YORK (Reuters) – Blackstone (NYSE:BX) Inc reported a 4% rise in its fourth-quarter distributable earnings on Thursday, as the world’s largest private equity firm cashed out on more of its assets across real estate, credit, and hedge funds.Distributable earnings, which represents cash used to pay dividends to shareholders, rose to nearly $1.4 billion in the three months to Dec. 31, up from $1.3 billion a year earlier. This translated to distributable earnings per share of $1.11, which was slightly ahead of the average Wall Street analyst estimate of 95 cents, according to LSEG data.The company’s net profit from asset sales rose 16% to $424.8 million, even as high interest rates, economic uncertainty and market volatility continue to weigh on the ability of private equity firms to cash out their investments.During the fourth quarter, the value of Blackstone’s opportunistic real estate portfolio lost 3.8%, corporate private funds gained 3.5%, while private credit and liquid credits fund added 3.9% and 3.3%, respectively. Its hedge funds gained 2.3%. During this period, the benchmark S&P 500 index rose 11.2%.Blackstone’s net income under generally accepted accounting principles fell nearly 73% to $151.8 million driven primarily by principal investment losses of nearly $300 million.Blackstone’s assets under management stood at $1.04 trillion, while unspent capital reached $197.3 billion. It raised $52.7 billion of new capital during the quarter, spent $31.1 billion on new investments, and declared a dividend of 94 cents. More

Turkey’s central bank on Thursday hiked its key interest rate to 45%, in line as expected.
Inflation in Turkey increased to 64.8% year-on-year in December, up from 62% in November.
Meanwhile, the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January, breaking 30 to the greenback for the first time.

Residents waiting at a bus stop under a large Turkish flag in Istanbul, Turkey, on Sunday, April 30, 2023.
Bloomberg | Bloomberg | Getty Images

Turkey’s central bank on Thursday hiked its key interest rate by another 250 basis points to 45%.
The hike to the benchmark one-week repo rate was in line with economists’ expectations.

It comes amid an ongoing battle against double-digit inflation for Turkey’s monetary policymakers, with the rate hike the latest step in that effort.
Inflation in Turkey increased to 64.8% year-on-year in December, up from 62% in November, and the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January, breaking 30 to the greenback for the first time.
Analysts predict this will be the last hike for some time, especially with local elections approaching in March.
“Encouragingly, the communications were relatively hawkish and suggest that policymakers recognise the need to keep interest rates high for a prolonged period if they are to have success in bringing inflation back down to single digits,” Liam Peach, senior emerging markets economist at London-based firm Capital Economics wrote in a note. “Our baseline view remains that the central bank will keep rates unchanged throughout this year.”
The Central Bank of the Republic of Turkey itself signaled that this was likely the end of the tightening cycle, saying of its decision: “The monetary tightness required to establish the disinflation course is achieved … The current level of the policy rate will be maintained until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range.”

The central bank’s move is the latest in a series of interest rate increases — now eight consecutive hikes since the May 2023 elections — that have been painful for Turks, as the country grapples with a dramatically weakened currency and skyrocketing living costs.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.
Anadolu Agency | Anadolu Agency | Getty Images

The last several years of high inflation are in large part the result of stubbornly loose monetary policy by the Ankara government. The lira is down 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the last five years. 
A new finance team was appointed in June last year, and Turkey’s central bank embarked on a sharp pivot, pulling rates higher under the supervision of Turkish Central Bank governor Hafize Erkan. The country’s benchmark interest rate has since been lifted from 8.5% to 45%. 
Still, some observers still don’t believe it’s enough to effectively bring down inflation.
Capital Economics expects Turkey’s inflation to drop “towards 30-35% by year-end” from 65% now, while Bartosz Sawicki, a market analyst at Conotoxia Fintech, sees it hitting close to 75% in May before starting to fall.
“The cumulative tightening of 3650 basis points may not be enough to decisively tame Turkey’s long-standing inflation problem,” Sawicki said, which he described as being caused by “a vicious mix of loose monetary policy, deep negative real interest rates and persistent lira weakness.”Broadly, analysts expect the central bank to hold rates for the rest of the year — and no rate cuts anytime soon.
“Inflation and inflation expectations will need to have fallen a long way before the central bank starts to cut interest rates,” Peach wrote. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every ThursdayWe’re coming up to a series of important central bank meetings: the European Central Bank announces its latest decisions today, the Federal Reserve and the Bank of England next week. They matter because everyone can feel we are coming up to a pivot point, and when that happens could determine everything from market behaviour to whether our economies deliver growth rather than stagnation this year. Today’s column consists of a warning about misreading the current inflation data: disinflation has come a lot longer than what many headlines might lead you to believe. Before that, though, let me bug you once more about our wonderful charity for financial literacy and inclusion — do check out the charity auction where just a few days remain to bid for lunch with yours truly, or one of my amazing colleagues.Over recent weeks, the most noticed inflation news in the US, eurozone and the UK has been that after falling consistently for many months, headline inflation rates have ticked up, sometimes going against expectations for further falls in the rate. This has played into the fear that disinflation has stalled, or its slight variant, and that there remains a lot of hard work to do before our latest inflationary episode is safely behind us. As my colleague Chris Giles described last month, this is the debate on whether the “last mile” really is the hardest. Worries about a premature end to disinflation dovetail with the argument of many central bankers that they cannot let up their vigilance. The name of the game of monetary policymakers is now to postpone any celebration of victory. Both ECB president Christine Lagarde and Dutch central bank head Klaas Knot have been trying to discourage observers from thinking that the fight against inflation has been won. “Once bitten, twice shy” is how one of my colleague Martin Arnold’s sources describes the ECB. Similarly, one Fed governor insisted last week the US central bank would “take our time”. And the BoE’s Andrew Bailey said in December there was “still some way to go”.But should we really be worried? It’s worth taking a slightly more detailed look at the alleged wobble in disinflation, beyond the uptick in headline year-on-year inflation in these three economies. Note that core inflation (excluding energy and some other volatile prices) did not pick up in the UK, unlike the headline figure:and it continued to fall in the eurozone:In the US, overall inflation as measured by the consumer price index has stabilised at just over 3 per cent year on year ever since last July — but the core CPI has kept falling:Besides, if you look at the inflation measure the Fed is actually aiming to bring down, the personal consumption expenditures index (only available up to November at the time of writing), both the headline and the core version have kept nicely falling from month to the next:There is a simple common point to observe across all of these measures: while the December uptick in some year-on-year rates is apt to trigger media headlines, those inflation measures more reflective of sustained price dynamics contain no sign whatsoever that the disinflation that’s been at work for more than a year in Europe and a year and a half in the US is fizzling out.And, in fact, even the headline rates don’t tell the story you might think. There is a mechanical aspect to year-on-year inflation measures — that is to say, the percentage by which this month’s price level is above that of the same month a year ago — that creates a risk of bias towards being too worried about persistent inflation. The fact that central banks all target a year-on-year inflation rate leads to an asymmetry between inflation and disinflation that isn’t sufficiently taken into account in our debate. At worst, it can fuel a bias towards keeping interest rates too high for too long. The asymmetry is this. Suppose you start from completely stable prices (or constant inflation at the 2 per cent target). Then something causes prices to accelerate — say a megalomaniac dictator invading a neighbouring country or cutting off natural gas exports. The year-on-year inflation rate will go up immediately, reflecting the ongoing inflationary pressures. But the day prices stop rising (or stop rising faster than the target rate), inflation will remain above target for a full year, simply because year-on-year inflation measures the changes that have happened in all of the past 12 months and not just what is happening now. Our most used inflation measure will pick up inflationary pressure immediately but only recognise the end of disinflation one year late. The chart below represents a stylised version of this phenomenon.The graph shows a situation where prices rise faster than the normal 2 per cent annualised rate for 18 months, indicated by the shaded area, leaving prices about 18 per cent above where they would otherwise be. You can see that the year-on-year inflation picks up this inflationary pressure immediately, but only gradually returns to 2 per cent a full year after disinflation is complete (disinflation back to 2 per cent happens right after the 18 months in this constructed example). The point four-to-five months to the right of the shaded area in that graph essentially illustrates where we are today. In the UK, the consumer price index is basically unchanged since September. In the US, the PCE index is actually lower (in November, the last available reading) than in September. So is the eurozone price index targeted by the ECB. And just for laughs, why not look at US prices with the index the ECB uses (the “harmonised index of consumer prices”): on that measure, prices have been outright falling and are down almost 1 per cent since September.Don’t make too much of this. Things could still change, and the devil is in the detail of how you define specific inflation measures. But understand what it means in terms of judging incoming data. The point is that there is no observable price inflation right now. The arithmetic of year-on-year inflation means the current above-target numbers do not reflect any ongoing price rises; they simply capture inflationary pressures that were at work more than about five months ago. So, for all we can see, the inflationary episode ended many months ago. As Paul Krugman puts it, there is no last mile.Central bankers know this, of course. It’s basic arithmetic. But you will not have heard any of them say in public that the required disinflation was complete by last autumn. The honest thing to say — if you really want to keep interest rates high — would be that the job is done but could come undone, so it’s better to keep rates high out of an abundance of caution. The reason to do this, but not to say it, is surely that it’s hard to defend in public — and central bankers’ fear of having to reverse course. That may be a sensible plan to avoid losing face. But it’s not an encouraging basis for public policy.Other readablesEU business leaders would like to see more common infrastructure spending at EU level, it emerges from my colleague Peggy Hollinger’s interview with the head of the European Round Table for Industry. As I wrote last week, that is where a “grand bargain” on the next EU budget could lie. A new study shows how European politics is not just divided between left and right, but by which crisis matters most in different countries.It’s a Free Lunch article of faith of sorts that there are lots of unused opportunities for greater productivity out there, which are not exploited when it is too cheap to use a lot of labour rather than sophisticated machinery (I have written about this as the car wash parable). Today’s exhibit: a nice Wall Street Journal video about how modular construction needs many fewer hands and makes for faster building. Also, note Leo Lewis’s note on how high-productivity Japanese housebuilders are muscling in on the US market.Numbers newsRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More