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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The transitory versus permanent inflation debate has suffered from vague definitions. With price growth in the US and Europe now tumbling, those on “team transitory” are somewhat smug. But of course, anything can be “transitory” on an unspecified timeframe.Definitional gripes aside, today’s rapidly falling inflation is insufficient to prove that it was always going to fade by itself. What matters is whether it would be even higher now had central banks not tightened monetary policy. The evidence suggests so.To avoid hindsight bias, it is worth casting minds back. Global inflationary dynamics over recent years have been driven by the pandemic and Russia’s invasion of Ukraine. This led to shocks in supply chains, energy and food. Some argued the that since these were largely supply-side matters, which monetary policy cannot change, and which will simply dim with time anyway, central bankers need not react. But what mattered was whether the supply deficiency, transient or otherwise, would be enough to spark inflationary dynamics. As the various shocks were indefinite — who knew how quickly Europe would restore gas supplies, or when China would reopen? — they risked amplifying each other, changing expectations and pricing behaviour. Indeed, central banks started belatedly tightening policy when it was clear that inflation expectations and wage growth was picking up. If they had not acted, what might have happened?Allianz Research has disaggregated the 9 percentage point drop in America’s quarterly annualised inflation since the second quarter of 2022 using regression analysis. It finds 5.5pp of the drop was indeed driven by supply-chain snags simply unwinding. But it also attributes 2.7pp to the Federal Reserve’s signalling, which helped to re-anchor inflation expectations. Another 2.2pp comes from the impact of higher rates squeezing demand, which was needed to counteract the inflationary impact of supportive fiscal policy and labour shortages. Maxime Darmet, Allianz’s senior US economist, said without the Fed’s actions and its tough words, quarterly annualised inflation would be 6.1 per cent in the fourth quarter of this year compared with the previous three months, instead of 0.7 per cent. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Europe’s experience, in contrast, has arguably been more transitory. The drop in its inflation has primarily been driven by the unwinding of its natural gas and food price shocks. But nonetheless, year-ahead inflation expectations hovered around 5 per cent for most of 2022. And annual negotiated wage growth reached 4.7 per cent in the third quarter.“Had the ECB left its deposit rate below zero over the past two years, I have no doubt that the labour market would be even tighter today, wage growth would be higher and — very likely — inflation expectations would have risen,” said Andrew Kenningham, chief European economist at Capital Economics.There is also mounting evidence of non-transitory changes in labour markets across advanced economies. Research by the Bank for International Settlements shows the change in demand for workers outstripping the change in the supply since the pandemic across several European nations and the US. This means there is some underlying upward pressure on wages, which warrants central bank action to restrain demand, particularly if productivity growth is subdued. Econometric research by the Bank of England shows that even in the absence of any inflationary shock in 2020 and beyond, UK inflation would have still been double the target by the second quarter of this year. Given how tight the labour market was in 2019, the Monetary Policy Committee would have had to take action anyway. The pandemic pulled down worker supply even further. Fitch Ratings expects UK, Eurozone, and US inflation to still be above target by the end of 2024, ranging from 2.5 to 3 per cent. “The fact is that core inflation, services inflation and nominal wage growth all remain well above rates compatible with inflation getting back to target on a sustained basis,” said its chief economist, Brian Coulton. “And this is 30 months after the initial jump in goods prices in April 2021 and after 20 months of very rapid monetary policy tightening.” A significant amount of the recent inflationary episode was indeed transitory. But there were also more lasting elements. And within the transient factors there were dynamics that would have become embedded. That made central bank action necessary. The focus of the debate should not be on whether they should have acted, but rather, by how much. That is even more complicated. [email protected] More

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TOKYO (Reuters) -Bank of Japan policymakers saw the need to maintain ultra-easy monetary policy for now, with some calling for a deeper debate on a future exit from massive stimulus, a summary of opinions at the central bank’s Dec. 18-19 meeting showed. “Looking ahead toward the future exit from current monetary policy, it is necessary to examine the positive effects and side effects of yield curve control and negative interest rate policy, and also consider their treatment,” one member was quoted as saying in the summary released on Wednesday.Another opinion in the summary said the timing of normalising the BOJ’s ultra-loose policy was “getting closer” given the increasing likelihood that Japan would achieve the bank’s 2% inflation target in a sustainable manner.”To avoid the risk of high prices damaging consumption and undermining the chance of achieving our price target, we should not miss the opportunity to normalise monetary policy,” the opinion said.At the Dec. 18-19 meeting, the BOJ maintained ultra-loose policy settings and made no change to its dovish guidance that pledges to take additional monetary easing steps as needed. More

SEOUL (Reuters) – North Korean leader Kim Jong Un has kicked off a key meeting of the country’s ruling party, state media KCNA reported on Wednesday, setting the stage for unveiling policy decisions for the new year.The ninth Plenary Meeting of the 8th Central Committee of the Workers’ Party of Korea wraps up a year during which the isolated country enshrined nuclear policy in its constitution, successfully launched a spy satellite and fired a new intercontinental ballistic missile (ICBM). The days-long assembly of the party and government officials has been used in recent years to make key policy announcements. Previously, state media released Kim’s speech on New Year’s Day. On the first day of the meeting on Tuesday, participants discussed six major agenda items, including this year’s policy and budget implementation, a draft budget for 2024 and ways to bolster the party’s leadership, KCNA said. Kim “defined 2023 as a year of great turn and great change,” lauding progress in all areas including the military, economy, science and public health despite some “deviations,” it said.He presented a detailed report involving “indices of the overall national economy which is clearly proving that the comprehensive development of socialist construction is being pushed forward in real earnest,” KCNA said. The development of new strategic weapons including the reconnaissance satellite has put the country “on the position of a military power,” it added. Tension has rekindled in recent weeks after North Korea tested its newest ICBM which it said was aimed at gauging the war readiness of its nuclear forces against mounting U.S. hostility. Kim also said last week that Pyongyang would not hesitate to launch a nuclear attack if an enemy provokes it with nuclear weapons.The United States, South Korea and Japan condemned the missile test, and activated a system to detect and assess North Korea’s missile launches in real-time and established a multi-year trilateral military exercise plan. More

(Reuters) -A federal appeals court on Tuesday overturned the conviction of former Nebraska congressman Jeff Fortenberry for lying to authorities investigating illegal contributions to his 2016 reelection campaign, saying his trial was held in the wrong place.The 9th U.S. Circuit Court of Appeals said Fortenberry should not have been tried in Los Angeles, where the Republican’s campaign allegedly received $30,000 from Lebanese-Nigerian billionaire Gilbert Chagoury, just because federal agents who later interviewed him about the money worked there.Writing for a three-judge panel, Judge James Donato said the U.S. Department of Justice could seek a new trial in Nebraska or Washington, D.C., where Fortenberry denied knowing about illegal contributions.Prosecutors said Chagoury donated the $30,000 through “straw donors” who attended a campaign fundraiser for Fortenberry in Los Angeles. Federal law prohibits foreign nationals from contributing to campaigns for federal, state and local offices.Donato, a district judge who normally works in San Francisco, said the trial did not belong in California just because Fortenberry’s alleged false statements affected investigators there.”This outlandish outcome cannot be squared with the Constitution,” Donato wrote for the appeals court, which heard the case in Pasadena, California.A spokesperson for U.S. Attorney Martin Estrada in Los Angeles in a statement noted the prospect for a retrial, and added: “We are evaluating potential next steps before deciding how best to move forward.”Fortenberry, who turns 63 on Wednesday, represented Nebraska’s 1st congressional district for 17 years before his March 2022 conviction on two counts of making false statements and one count of scheming to conceal material facts.He resigned from Congress that month, and was sentenced in June 2022 to two years of probation and 320 hours of community service.”We are gratified by the Ninth Circuit’s decision,” Fortenberry said in a statement, citing his wife. “Celeste and I would like to thank everyone who has stood by us and supported us with their kindness and friendship.”Chagoury paid a $1.8 million fine in December 2019 to resolve a Justice Department probe that he illegally conspired to donate $180,000 to four candidates in federal elections.The case is U.S. v. Fortenberry, 9th U.S. Circuit Court of Appeals, No. 22-50144. More

After meeting with acting President Geraldo Alckmin, Haddad told reporters they discussed “a commitment we have to the industry to allow entrepreneurs to deduct (machinery) depreciation from income tax more rapidly than the law currently allows.”The current tax code allows companies to deduct capital goods purchases gradually as the asset depreciates.Vice President Alckmin had long been discussing the program as a promise from the leftist government of President Luiz Inacio Lula da Silva to boost the industry.By Thursday, the government will send to Congress measures to offset the fiscal impact of an approved bill that extended payroll tax exemptions for 17 sectors until 2027, Haddad said. More

“With this project authorization, we’ve begun winter construction,” CEO Ryan Lance said.Environmental and indigenous groups in November asked a federal court in Alaska to temporarily bar ConocoPhillips from going forward with construction of the project in the state’s Arctic, arguing a stay is necessary to stop imminent cultural and environmental harms.The Willow project area holds an estimated 600 million barrels of oil, and ConocoPhillips has said the project will produce up to 180,000 barrels of oil per day at its peak.The project development has been backed by Alaskan officials, who are hoping it will help offset oil production declines in a state whose economy relies heavily on the oil and gas industry. More