Economy

Officials from the Group of 7 are striving to strike a delicate balance that encourages Russia to keep pumping oil but to sell it at a discount.WASHINGTON — As the United States and its Western counterparts race to finalize the mechanics of an oil price cap intended to starve Russia of revenue and stabilize global energy markets, a crucial question remains unresolved: How should the price be set?The Group of 7 countries that formally backed the price cap concept this month are deliberating how much Russia should be allowed to charge for its oil as they prepare to release more details of the plan. It has emerged as a central question that could determine the success of the novel idea, Russia’s response and the trajectory of oil prices as winter approaches. Setting the price will require aligning the complex array of economic and diplomatic forces that govern volatile oil markets.The consequences of getting the oil price cap wrong could be severe for the world economy, and time is running short. The Biden administration fears that if the cap is not in place by early December, oil prices around the world could skyrocket given Russia’s outsize role as an energy producer. That’s because when a European Union oil embargo and a ban on financial insurance services for Russian oil transactions take effect on Dec. 5, the removal of millions of barrels of Russian oil from the market could send prices soaring.European financing and insurance dominate the global oil market, so the looming sanctions could disrupt exports to parts of the world that do not have their own embargoes — by making it harder or more expensive to get Russian oil at a time when energy costs are already high. The price cap will essentially be an exception to Western sanctions, allowing Russian oil to be sold and shipped as long as it remains below a certain price.The idea has won plaudits from economists who see it as an elegant win-win strategy for the West. But many energy analysts and traders have expressed deep skepticism about the concept. They believe that a fear of sanctions could scare financial services companies off Russian oil, and that Russia and its trading partners will circumvent the cap through new forms of insurance or illicit transactions.The impact of the proposed oil price cap and the potential for unintended consequences are two of the biggest quandaries facing the nations that have been enduring soaring inflation prompted by supply chain disruptions and Russia’s war in Ukraine.The leaders of the Group of 7 in June. In a joint statement this month, the group’s finance ministers said the “initial” price cap would be based on a range of “technical inputs.”Kenny Holston for The New York Times“We are looking at a far more complex oil market,” said Paul Sheldon, a geopolitical risk analyst at S&P Global Platts Analytics. “This is an unprecedented dynamic where you have such a large supplier of oil under unprecedented sanctions. We’re in new territory on several levels.”Exactly how the price cap will be set remains unclear.In a joint statement this month, finance ministers from the Group of 7 said the “initial” price cap would be based on a range of “technical inputs” and decided on by the group of countries that join the agreement. The Treasury Department’s Office of Foreign Assets Control said last week that the price cap would be determined by a “range of factors” and that countries that were part of the price cap coalition would make the decision by consensus. The coalition would be headed by a rotating coordinator from among the countries.A Treasury official said the process for setting the level of the oil price cap would constitute the next phase of the agreement, after technical details about enforcement had been decided and more countries had signed on to the coalition.The State of the WarDramatic Gains for Ukraine: After Ukraine’s offensive in the country’s northeast drove Russian forces into a chaotic retreat, Ukrainian leaders face critical choices on how far to press the attack.In Izium: Following Russia’s retreat, Ukrainian investigators have begun documenting the toll of Russian occupation on the northeastern city. They have already found several burial sites, including one that could hold the remains of more than 400 people.Southern Counteroffensive: Military operations in the south have been a painstaking battle of river crossings, with pontoon bridges as prime targets for both sides. So far, it is Ukraine that has advanced.An Inferno in Mykolaiv: The southern Ukrainian city has been a target of near-incessant shelling since the war began. Firefighters are risking their lives to save as much of it as possible.As U.S. officials think about setting the price cap, they are focused on two numbers: Russia’s cost of producing oil and the price that the commodity historically fetched on global markets before the war in Ukraine sent prices higher.The Biden administration realizes that Russia will not have an incentive to keep producing oil if a cap is set so low that Russia cannot sell it for more than it costs to pump it. However, setting the cap too high will allow Russia to benefit from the upheaval it has caused and blunt the cap’s ability to sufficiently curtail Russia’s oil export revenues.Before the war and the pandemic, Russian crude, known as Urals, typically sold for between $55 and $65 a barrel. Determining Russia’s cost of production is more complicated because some of its wells are more expensive to operate than others. Most estimates are around $40 per barrel.The price cap could settle somewhere among those numbers.Officials are also discussing whether shipping costs should be included in the cap or if it should just include the oil itself. Separate caps would be enacted for Russia’s refined oil products, such as gas oil and fuel oil, that are used for operating machinery and heating homes.A tanker with imported crude oil in China. The Biden administration hopes that even if China does not formally participate in the price cap the country will use it as leverage to negotiate lower prices with Russia.Agence France-Presse — Getty ImagesOil prices have hovered around $90 a barrel in recent weeks. Russian oil is currently selling at a discount of about 30 percent. Some analysts believe that designing the cap as a mandated level below global benchmark prices could be more effective since oil prices can swing sharply.“If you fix it at a certain level, that could create some risks because the market can fluctuate,” said Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, who noted that oil prices could fall below the cap level if it was set too high.“To increase the economic pain on Russia, you want to make the capped price substantially lower than the global average,” he said.As of now, the Treasury Department does not appear to support such an idea. The United States intends for the cap to be a fixed price — one that would be regularly reviewed and could be changed if the countries in the pact agreed to do so. The frequency of the reviews would depend on market volatility. Setting the cap at a discounted rate would introduce additional complexity and compliance burdens, the Treasury official said, because the cap rate could change hourly.Making sure the price cap is adhered to is another hurdle. Treasury Department officials have been holding discussions with banks and maritime insurers to develop a system in which buyers of Russian oil products would “attest” to the price that they had paid, releasing providers of financial services of the responsibility for violations of the cap.In its guidance last week, the Treasury Department said service providers for seaborne Russian oil would not face sanctions as long as they obtained documentation certifying that the cap was being honored. However, it did warn that buyers who knowingly made oil purchases above the price cap using insurance that was subject to the ban “may be a target for a sanctions enforcement action.”The impact of a price cap on global markets is difficult to predict. Mr. Cahill suggested that it could essentially create three tiers of crude, with some Russian oil being sold at the capped price, other Russian oil being sold illicitly or with alternative forms of financing and non-Russian oil being sold by other oil-producing nations.It is not clear how many countries beyond the Group of 7 will join the agreement. The Biden administration is hopeful that even if countries such as China and India do not formally participate they will use it as leverage to negotiate lower prices with Russia.Besides the oil cap’s price, the other big wild card is Russia’s response to it. Russian officials have said they will not sell oil to countries that are part of the price cap coalition, and analysts expect that the country will do its best to fan the volatility with some form of retaliation.The United States hopes that economic logic will prevail and that oil will keep flowing, albeit at a cheaper price.“Russia may bluster and say they won’t sell below the capped price, but the economics of holding back oil just don’t make sense,” Wally Adeyemo, the deputy Treasury secretary, said at a Brookings Institution event last week. “The price cap creates a clear economic incentive to sell under the cap.”Edward Fishman, a senior research scholar at the Center on Global Energy Policy at Columbia University, argued that the price cap could work because the incentives that it would create aligned most buyers, sellers and facilitators of oil transactions toward compliance. He suggested that global oil prices could end up organically gravitating toward the level of the price cap.However, Mr. Fishman acknowledged that Russia and its president, Vladimir V. Putin, might read the incentives differently.“There’s always a sliver of a doubt in people’s minds about Putin’s rationality and his willingness to set the global economy, and his own economy, ablaze in order to make a point,” Mr. Fishman said. More

Rising mortgage interest rates are piling pressure on millions of UK homeowners at a time when soaring bills for energy, food and fuel are blowing holes in household budgets across the country. The choices facing mortgage borrowers are set to worsen next week, when the Bank of England is widely expected to raise its main interest rate for the seventh time since December. Most borrowers will have protected themselves from the immediate impact of any decision by opting for a fixed-rate mortgage deal. But those who fixed at a time of ultra-low rates may be in for a shock when they refinance, with the average two-year fix now coming in at over 4 per cent. “The base rate changes are coming thick and fast,” says David Hollingworth, director at mortgage broker L&C. “Those who are just feeling buffeted from all sides need to get hold of it and if they’ve not done anything about reviewing mortgage rates that should be the priority.”Making sure you’re getting the best available deal is just one of the steps borrowers can take to mitigate the pain of interest rate rises. FT Money explores some of the options for those confronting a home loan crunch. Move fastLenders’ standard variable rates, which tend to track BoE base rate changes, show the extent to which rate changes have affected household budgets. In early December 2021, when the BoE’s main interest rate was at 0.1 per cent, standard variable rates at big lenders such as Nationwide and Halifax were around 3.59 per cent. Since then, six successive increases have brought base rates up to 1.75 per cent — and SVRs have risen to around 5.24 per cent, according to L&C. In December, someone with a £300,000 mortgage on SVR would have paid £1,516 a month in interest. At current rates, they pay an additional £280 a month. But if the base rate hits 2.25 per cent next week, that extra monthly figure could reach £370, L&C estimates. Most borrowers already know to avoid SVR, typically the most expensive form of mortgage borrowing in a lender’s arsenal, though Hollingworth points out many will have drifted on to these rates at a time when the difference between SVR and other options mattered less. Increasingly, therefore, fixed-rate deals are becoming the only game in town. Among new buyers, 19 out of 20 (95.5 per cent) are taking out a fixed-rate mortgage, according to the Financial Conduct Authority, while 17 out of 20 mortgaged homeowners have fixed their rates. “More homebuyers are taking out mortgages with fixed rates than ever before,” says Lawrence Bowles, director of research at estate agent Savills.By opting for fixed-rate mortgages, borrowers are seeking to lock in rates in expectation of further rises later. But the costs of this type of deal are rising fast, too. Borrowers now looking for another offer as their fixed period comes to an end will face much more expensive terms. Average rates on a two-year fix have nearly doubled from 2.24 per cent a year ago to 4.24 per cent this week, according to finance website Moneyfacts. Not only that but banks and building societies are rapidly paring back the number of home loans they offer. Over 500 deals were pulled from the market in the month to September, Moneyfacts found. There are now 1,425 fewer deals available than at the beginning of December 2021. Lenders often struggle to cope with demand if their deals top the ranks of the “best buys” on the market and they find themselves attracting a flood of customers. This can be frustrating for borrowers who identify a deal, only to find it withdrawn by the time they apply. Last week, for instance, Barclays withdrew six mortgage products only a day after it introduced them, citing the challenges lenders face “when balancing service with product availability”. This week it raised the rates on 20 of its deals by 0.4 percentage points. The upshot for borrowers is that they should be ready to grab a rate as soon as it looks like a good fit for their requirements. Aaron Strutt, technical director at mortgage broker Trinity Financial, says: “Most mortgages last longer than a day, but in many cases they may only be available for three or four days, with many lenders sending multiple rate change emails each week.“If you find a rate that you like it’s worth securing it quickly because it will not be around for long.”Beat the deadlineThis autumn and next year, a wave of UK homeowners will come to the end of their fixed mortgage deals secured during the good times of ultra-low rates. UK Finance, the trade body, estimates 1.8mn people will see their fix elapse in 2023. Mortgage costs have risen this year but are expected to rise further, even as August’s inflation figures came in this week lower than anticipated, with the consumer prices index levelling off at an annual 9.9 per cent. The good news for borrowers facing a refinancing crunch next year is that many lenders will allow them to secure a fixed-rate deal well ahead of the end of their current fix. A mortgage offer will typically be valid for up to six months, so borrowers can bank a lower rate with a view to completing it once their current deal comes to an end.That benefits them in two ways, says Hollingworth. “It gets ahead of any further increases in fixed rates that might feed through — which currently still remains the direction of travel. Second, they get the benefit of the remainder of any lower rate they currently enjoy.” Borrowers should even consider starting the process ahead of the six-month offer period, says Simon Gammon, managing partner of broker Knight Frank Finance, since some lenders such as Nationwide will honour the rate on which they apply for the mortgage. “You have up to three months in which to get the mortgage offer approved at that rate. And once it’s approved, you then have six months in which to draw it down,” he says.Some borrowers may consider a “clean break” to be preferable, by coming out of their current fix early — in spite of incurring early repayment charges — and moving to another, perhaps longer-term, deal straightaway. But brokers say they should exercise caution before giving up an attractive current deal. “You won’t know until you’ve got the luxury of hindsight as to whether that was a good decision or not — because you don’t know how rates will progress from here. And you’ll have a hefty repayment charge to contend with in most cases,” says Hollingworth.Borrowers seeking to refinance must decide whether to stay with their current lender — an option known as a “product transfer” — or remortgage elsewhere. In recent months, lenders have improved rates on product transfers to keep customers loyal. But these transfer deals may only be locked in three to four months ahead of the expiry of the existing rate, notes Chris Sykes, technical director at broker Private Finance. At a time of rapidly changing interest rates, borrowers must trade off the possibility of securing an attractive deal now with a new lender against a discounted “loyalty” rate from the existing lender closer to the moment of expiry. “The best advice [is] usually to secure a remortgage as early as possible then re-look at things nearer to the time of product renewal, potentially then doing a product switch instead,” Sykes says. Repay or restructureOne reason to hang on to an existing fix until it ends is that it gives borrowers an option to overpay while their effective interest rate is low, reducing the total size of their mortgage and potentially giving them access to better rates in future. For those fortunate enough to be able to do this, most lenders allow overpayments of up to 10 per cent a year. With other household bills climbing steeply, doing so in the long run should mean you’ll have to set aside less of your overall budget to pay for the mortgage. But there are other, more radical, ways of reducing the size of your monthly payments. First, if you think you will be unable to make your repayments and fear you will fall into arrears, your lender might allow you to move temporarily to an interest-only arrangement, cutting your monthly commitments substantially. They will usually only allow this where borrowers have a set minimum of equity in the home and with loan-to-value levels towards the lower end of the scale.Ray Boulger, senior mortgage technical manager at broker John Charcol, says one strategy would be to switch to interest-only to slash your monthly payments, and then — if you can afford it — pay up to 10 per cent of the overall debt without incurring a repayment charge. “You’ve got a much lower commitment, but you’re contractually meeting your obligations. And then if you choose to overpay, that’s absolutely fine. Whereas if you’ve got to retain the mortgage and you simply underpay, even though you’re paying all the interest, you’ll be deemed to be in arrears and then you’ll get a bad credit rating.” Keeping a clean credit history is a major consideration. Going into arrears makes it much harder to get another mortgage and, even if you can, lenders are likely to charge you a higher rate, which compounds potential payment problems. Boulger adds that anyone considering a short-term or permanent switch on to interest-only needs to scrutinise the terms with the bank. “If you are going to change your mortgage conditions, always ask the lender to confirm that it won’t adversely affect your credit rating.”A second way of cutting your monthly payments is to extend the term of your mortgage, so it is repaid not over, say, 25 years, but 30 or 40. This won’t always be possible, given lenders’ rules on the age by which you must have paid off the loan, but some will be more flexible than others. “It won’t have as big an impact as switching to interest-only, but it may still be enough to get you over any short term financing problems,” says Boulger. He warns, though, that taking longer to pay back your mortgage means you’ll pay more interest over the term of the loan, raising your costs in the long term, if not the short.Scale back your ambitionsIt has been a year of high demand among homebuyers and short supply at estate agents, pushing up property prices and encouraging buyers to stretch themselves financially to outbid rivals. But there are signs that buyers are tempering their aspirations. Interest rates rises and the cost of living have started to impact buyers’ budgets, according to a survey this week by Savills. Almost a third (29 per cent) of 1,000 prospective buyers quizzed in late August said they had cut back their budgets because of these factors. The proportion was higher for those with mortgages: some 44 per cent of those looking to move to a new home said they had reduced their budget.“Despite transactions remaining robust over the summer months, there’s now certainly less urgency in the market, with rising costs of debt impinging on the budgets of those most reliant on a mortgage. Increased costs of living are also making buyers much more conscious when it comes to how much they are willing to spend,” says Frances McDonald, Savills research analyst.Gammon at Knight Frank Finance says the shift in mood among buyers seeking mortgage finance has been tangible over the past month, as the “sellers’ market” of the past two years fades. “We’re seeing those who are looking to buy a property starting to pause and say — actually, I’ve rerun the numbers and I just can’t afford a mortgage that big any more. They say they’ll have to check with their wife or husband about what’s realistic, because this has suddenly gone from very affordable to a real stretch.” Higher earners are also changing their behaviour when it comes to the costs of debt. Lisa Parkes, a private banker at Investec, describes a longstanding British client with a £3mn mortgage facility on a £5mn home. This “revolving mortgage” allows him to draw down cash to put into investments or second home purchases as and when he chooses, or to repay it with no penalties charged. “He’s always valued flexibility in having access to liquidity,” she says. Now, though, the expense of maintaining such a credit facility has brought him back to a much more mainstream mortgage model. “We’re looking at a 70 per cent loan-to-value on a five-year fixed . . . That price differential has never been a concern for him in the past, but now it is.”She notes similar concerns among other clients. “It’s unprecedented, really.”

The five-year fixed deal has become the arrangement of choice. At 4.33 per cent for the average five-year deal, compared with 4.24 for the two-year, Moneyfacts data suggests there is little to choose between them when it comes to rates. Gammon says less than half of the deals coming through the broker a year ago would have been fixed for five years or more. “Now two-thirds of the deals we’re doing are on long-term fixed rates.” Readers who lived through previous eras of mortgage distress may regard current worries over potential rises in interest rates to be overblown; in 1989, after all, base rates hit 14 per cent, and 17 per cent in 1979. But a return to “normal” base rates would have a much more serious effect on borrowers’ finances now, says Neal Hudson, director of market research company Residential Analysts. “Mortgages are now at much higher multiples of income . . . and most are on a repayment basis. This leaves current borrowers very exposed to even slightly higher rates, let alone those at 4 per cent plus,” he says. Hudson illustrated the difference by calculating what today’s mortgage rates would have to be to match the mortgage repayment ratios of previous years. The results are sobering: repayments under the 14 per cent rate of 1980 are equivalent to repayments today at a rate of 3 per cent. As the rate rises look likely to clock up for months to come, borrowers would be wise to revisit their financial assumptions and ambitions. More

Where would you rather live? A society where the rich are extraordinarily rich and the poor are very poor, or one where the rich are merely very well off but even those on the lowest incomes also enjoy a decent standard of living?For all but the most ardent free-market libertarians, the answer would be the latter. Research has consistently shown that while most people express a desire for some distance between top and bottom, they would rather live in considerably more equal societies than they do at present. Many would even opt for the more egalitarian society if the overall pie was smaller than in a less equal one.On this basis, it follows that one good way to evaluate which countries are better places to live than others is to ask: is life good for everyone there, or is it only good for rich people?To find the answer, we can look at how people at different points on the income distribution compare to their peers elsewhere. If you’re a proud Brit or American, you may want to look away now.Starting at the top of the ladder, Britons enjoy very high living standards by virtually any benchmark. Last year the top-earning 3 per cent of UK households each took home about £84,000 after tax, equivalent to $125,000 after adjusting for price differences between countries. This puts Britain’s highest earners narrowly behind the wealthiest Germans and Norwegians and comfortably among the global elite. So what happens when we move down the rungs? For Norway, it’s a consistently rosy picture. The top 10 per cent rank second for living standards among the top deciles in all countries; the median Norwegian household ranks second among all national averages, and all the way down at the other end, Norway’s poorest 5 per cent are the most prosperous bottom 5 per cent in the world. Norway is a good place to live, whether you are rich or poor.Britain is a different story. While the top earners rank fifth, the average household ranks 12th and the poorest 5 per cent rank 15th. Far from simply losing touch with their western European peers, last year the lowest-earning bracket of British households had a standard of living that was 20 per cent weaker than their counterparts in Slovenia.It’s a similar story in the middle. In 2007, the average UK household was 8 per cent worse off than its peers in north-western Europe, but the deficit has since ballooned to a record 20 per cent. On present trends, the average Slovenian household will be better off than its British counterpart by 2024, and the average Polish family will move ahead before the end of the decade. A country in desperate need of migrant labour may soon have to ask new arrivals to take a pay cut.Across the Atlantic it’s the same story, only more so. The rich in the US are exceptionally rich — the top 10 per cent have the highest top-decile disposable incomes in the world, 50 per cent above their British counterparts. But the bottom decile struggle by with a standard of living that is worse than the poorest in 14 European countries including Slovenia.To be clear, the US data show that both broad-based growth and the equal distribution of its proceeds matter for wellbeing. Five years of healthy pre-pandemic growth in US living standards across the distribution lifted all boats, a trend that was conspicuously absent in the UK.But redistributing the gains more evenly would have a far more transformative impact on quality of life for millions. The growth spurt boosted incomes of the bottom decile of US households by roughly an extra 10 per cent. But transpose Norway’s inequality gradient on to the US, and the poorest decile of Americans would be a further 40 per cent better off while the top decile would remain richer than the top of almost every other country on the planet.Our leaders are of course right to target economic growth, but to wave away concerns about the distribution of a decent standard of living — which is what income inequality essentially measures — is to be disinterested in the lives of millions. Until those gradients are made less steep, the UK and US will remain poor societies with pockets of rich people.Use the interactive version of the chart below to compare other countries:

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

[email protected]@jburnmurdoch More

What is inflation? The answer seems obvious: when things get more expensive, that’s inflation, and it’s bad. But an alternative view is Milton Friedman’s. In a talk in 1963, the hugely influential economist defined inflation as “a steady and sustained rise in prices” and added that “inflation is always and everywhere a monetary phenomenon”.The distinction matters. Consider two scenarios that might illuminate it. In both of them, consumer prices have increased by 10 per cent over the past year.In Inflation World, there’s too much money around. Everything is getting more expensive at much the same rate, including labour. With your wages rising at the same rate as prices, the situation is disorienting and slightly inconvenient, but it’s not a crisis. The main risk is that inflation becomes self-perpetuating, and the main responsibility for solving the problem lies with the central bank.In Energy Crunch World, the cost of energy has doubled. About 10 per cent of spending used to go into energy; that’s now about 20 per cent. In Energy Crunch World, the consumer price index has still risen by 10 per cent, and the situation is described by all reputable reporters as “inflation of 10 per cent”, just as in Inflation World. But the increase in prices is not “steady”; it’s not widespread; and it is unlikely to be “sustained”. The risk of a self-perpetuating energy shock is small. It is hard to imagine that we would be spending 30 per cent of income on energy next year, 40 per cent the year after and 50 per cent the year after that. But the damage is bad enough; rather than being mildly disorienting, this is a crisis. A basic necessity has become unaffordable for many. In Inflation World, stuff only seems more expensive because the price tags keep changing. That’s inflation. In Energy Crunch World, stuff really is more expensive. I’d venture to suggest that’s not inflation — it’s much worse.The same distinction applies when things get cheaper thanks to technological progress. Music is much cheaper than it used to be, as are laptops and solar panels. And by “cheaper” I don’t mean in the almost-meaningless sense that there are fewer digits on the price tag. I mean cheaper in the only way that really matters, which is that they require fewer resources to produce and are therefore affordable in greater quantities to more people.Perhaps I am doomed to fail in my project to disentangle real price changes from inflation. The real world, of course, contains elements of both, so confusion is inevitable. We are dealing with a temporary but very painful increase in the real cost of energy and food, as in Energy Crunch World, but we have also seen loose money and broader increases in prices, as in Inflation World. But the two sources of higher prices require quite different policy responses. In Inflation World, inflation is a monetary phenomenon and needs a monetary response such as higher interest rates. In Energy Crunch World, the rise in prices needs a real-world response in the form of support for struggling households, and every effort to reduce demand and to find new sources of supply. Look around and you’ll see plenty of confusion on this point. In the US, the recently signed Inflation Reduction Act is no such thing. It promises to squeeze the price of expensive pharmaceuticals, give tax credits for low-carbon energy sources and tighten some tax loopholes. These are promising policies, but if they work they will work by improving the structure of the real economy, not by tightening monetary conditions.

The same logic applies to US proposals to toughen competition policy. If a monopoly is broken up and its fat mark-ups reduced, the result should be that prices fall and incentives to improve quality and service increase. That should mean a one-off boost in real living standards, arguably far more important than any impact on inflation. If it affects inflation at all, it will be a temporary blip — and “reduces inflation” never was, and never should be, the test of competition policy.Or consider the idea of a universal basic income. It’s often attacked on the grounds that it is inflationary, but there is nothing particularly inflationary about raising taxes and using the money to fund a basic income. The case against a basic income is nothing to do with inflation: it’s that those higher taxes plus the availability of unconditional cash might produce too much of a disincentive to work for too many people.Friedman was oversimplifying when he declared that inflation was always and everywhere a monetary phenomenon. But the statement is not far wrong and has a bracing clarity. If you try to evaluate clean energy subsidies, support for cutting edge research, competition policy or tax reform through the lens of inflation-busting, you’re missing the point. These policies stand or fall on their real-world merits. Meanwhile, the best long-run prediction of inflation is that five years out, the inflation rate will be whatever independent central banks want it to be. Even if elected governments could help, they have plenty of serious economic problems to keep them busy. Perhaps they should start there. Tim Harford’s new book is ‘How to Make the World Add Up’Follow @FTMag on Twitter to find out about our latest stories first More

Progress in offering quality education to children around the world by 2030 is falling well behind target. The proportion of students who complete lower secondary school (typically those aged 12-15 years) has been rising in recent decades, but remains a minority in poorer countries.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Efforts to increase the proportion of children attending school have been increasing, but have often not been matched by improved learning. Many children are failing to gain basic literacy and numeracy skills — making it impossible for them to progress to secondary school, and pushing many to drop out of education. “Learning poverty” has increased during the Covid-19 pandemic, which set back children around the world — particularly those from poorer backgrounds and without access to parental support or the internet.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Funding for education remains limited overall. Governments account for the greatest share, and those in low-income countries invest a far more modest proportion of GDP than their richer counterparts.A large share of the costs of schooling is paid by families themselves, especially in lower-income countries, which further increases inequality.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Donor funding for education is modest and lags far behind international development assistance given for health and other sectors.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser. More

While western businesses reel from the highest inflation experienced in decades, many of their Turkish peers, who face a rate almost 10 times higher, are taking it in their stride.The country has suffered a succession of crises in recent years, but the economy continues to grow, propped up by a mixture of cheap credit, diversification and savvy corporate management honed during episodes of turmoil in years and decades past. “It is difficult, but we have faced this in Turkey [before],” said a senior executive at one of the country’s biggest manufacturers. “Somehow we know how to support the customers, the dealer network, to continue operations in a high-inflation environment,” he added, citing how the company had managed to find a sweet spot for pricing that covered its costs without deterring customers.Charlie Robertson, chief economist at investment bank Renaissance Capital, said that Turkish corporate management teams had experienced “soft coups, violent coups, sustained triple-digit inflation and multiple currency crises” in the 25 years that he had spent following the country. “Darwin’s ‘survival of the fittest’ certainly applies in Turkey,” he said, adding that it is also buoyed by the demographic dividends of its young population and strong underlying GDP growth. The economy expanded 7.6 per cent year on year in the second quarter and 11 per cent last year. One of the many challenges for Turkish company bosses has been worker pay, given the erosion of purchasing power caused by official inflation that topped 80 per cent in August. Eurozone inflation hit a record 9.1 per cent in August.President Recep Tayyip Erdoğan is opposed to high interest rates, despite astronomical inflation © Moe Zoyari/BloombergAs price rises began to take off in the summer of last year, Mustafa Tonguç, the chief executive of DHL Express in Turkey, complied a list of the cost of 50 basic products and compared them with their equivalents in Germany in an effort to persuade bosses in the logistics provider’s headquarters to raise the wages of his 1,100 staff. He would raise them a further three times in the year ahead. “We as business can’t fix the global economy, but we can take care as much as we can of our people,” said Tonguç. “In the last 12 months, a lot of companies went bankrupt. We felt people should be assured of their job security.”Tonguç also came up with a pricing structure for customers and suppliers, which include businesses in the textiles and automotive sectors, that fixed the cost of some parts of their fees and linked others to rapidly changing inputs such as the cost of fuel and packing. His advice to western executives is: “Don’t panic, focus on productivity . . . focus on the things you can change.”Much of the Turkish business world is angry and frustrated at president Recep Tayyip Erdoğan, who is so staunchly opposed to high interest rates that he has repeatedly ordered the central bank to cut borrowing costs despite rising inflation. Still, even if his increasingly erratic economic management marks a break with the stability of his early years in power, executives say they at least have experience of dealing with high inflation and currency weakness from difficult periods in the 1980s and 1990s.The most recent sharp plunge in the lira last December, when it hit a new record low, was “not nice”, conceded Tolga Kaan Doğancıoğlu, chief executive of the Turkish bus manufacturer TEMSA. But he said that as inflation began to climb in Turkey and worldwide, his company “immediately switched gears” and decided to access the financing needed to increase production of low-margin non-electric vehicles. While conventional wisdom suggests that inflation leads to a drop in demand, Doğancıoğlu said that past crises in Turkey had often shown the opposite to occur — at least initially. The same was true in this case.“Obviously, high inflation or hyperinflation in the long run is not healthy. But there is a period a sweet spot [where] as a company, you need to take agile decisions in order to not to lose the market.” He added: “In an inflationary environment, investing early has a virtue as well.”Turkish companies more dependent on their home market have been left exposed © Yasin Akgul/AFP/Getty ImagesAs they have weathered a string of blows in recent years, Turkish groups reduced their exposure to swings in the lira by “dramatically” scaling back their dollar and euro-denominated debt and accumulating hard currency, according to Murat Üçer, an economist at the consultancy GlobalSource Partners. The deleveraging has brought their net open foreign currency position down from roughly $200bn in 2018 to about $100bn today. “This is a welcome and understandable development,” he said.Still, there are concerns about the true scale of problem loans in the banking sector as state lenders, in particular, have used cheap credit to help struggling companies stay afloat.Many of the most successful Turkish businesses — including those in the automotive, chemicals and textiles sectors — have prioritised exports, taking advantage of the weaker lira to sell their goods across the world and helping to power economic growth.It has been tougher for those heavily reliant on local sales. Fitch last month downgraded the debt rating of a string of corporates, including white goods maker Arçelik and the telecoms company Turkcell, because of their high exposure to the domestic market. The chief executive of a large retail business focused on Turkey lamented that, even if his sales grow in lira terms, the falling lira means that the profits disappear when converted into dollars. “It makes life very difficult with investors,” he said.Robertson at Renaissance warned that there was a risk that the government’s array of unorthodox measures aimed at supporting growth while also propping up the currency are putting the country’s sovereign credit rating under pressure and could eventually “come back to bite” it. He pointed to a government-backed scheme that promises to compensate savers for a slide in the exchange rate as one example.

Others praise the resilience but lament the missed opportunities for the country, where GDP per capita is down from a peak of $12,600 in 2013 to $9,600 last year — a stark illustration of the erosion of prosperity.“I worked so hard for the last 20 years only for our country to be back where it was in the 1990s,” said one senior executive at a company with interests in tourism and energy. “This country is so resilient and so dynamic that somehow most people are still standing . . . But this country could have been another South Korea. I feel very sad when I think about where it could have been compared to where it is today.” More

SYDNEY (Reuters) -Australia’s top central banker on Friday said interest rates are closer to normalisation after a successive run of outsized hikes, although he warned rates are still low, hinting a range of 2.5%-3.5% would be appropriate depending on economic cycles. Reserve Bank of Australia (RBA) Governor Philip Lowe flagged more interest rate rises are required to bring inflation back to the bank’s 2%-3% target range, but said it would be appropriate to slow the rate of increase at some point.”At some point, we will obviously not be increasing rates by 50 basis points at each meeting, and we’re getting closer to that point,” Lowe told a parliamentary economics committee. Lowe said rates should at least average 2.5% over time and cycle between 2.5% to 3.5% depending on how the economy performs.”We are closer to that now. We are at 2.35%, so we’re getting closer to the range that you think is normal but we’re probably still on the low side,” Lowe added. In just five months, the RBA has raised its key cash rate by 225 basis points to a seven-year high of 2.35% as it battles to contain a surge in inflation to the highest since 1990.Markets are wagering on further hikes to a peak around 3.85%, though investors are less sure whether the central bank will go by another outsized 50 basis points in October or cut back to quarter-point moves.Hawkish commentary from other major central banks argue for the RBA to stay aggressive, with the U.S. Federal Reserve widely expected to hike by at least 75 basis points next week.Lowe said the next board meeting will be considering whether its a 25 bp increase or a 50 bp increase, reiterating the size and timing of future rate hikes will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market. The bank was not on a pre-set path given the uncertainties involving the global economy, inflation expectations, wage growth and household spending, according to Lowe. More

The Fed needs to pump the brakes on rate hikes, Barry Sternlicht said.
If it doesn’t, it will cause a “serious recession,” he predicted.
The central bank is expected to raise rates again next week.

The U.S. economy is teetering on the brink of a serious downturn if the Federal Reserve doesn’t pump the brakes on its rate hikes, billionaire CEO Barry Sternlicht said.
The central bank has already raised interest rates four times this year and is widely expected to hike them by 75 basis points next week in an effort to tame inflation. Earlier this week, consumer prices rose 0.1% instead of the 0.1% decline economists surveyed by Dow Jones were expecting.

However, Sternlicht believes the Fed was late to the game and is now being too aggressive.
“The economy is braking hard,” the chairman and CEO of Starwood Capital Group told CNBC’s “Squawk Box” on Thursday.
“If the Fed keeps this up they are going to have a serious recession and people will lose their jobs,” he added.
Consumer confidence is terrible and CEO confidence is “miserable,” Sternlicht said. Supply chain issues are being resolved, and inventories are now backing up in warehouses, which will lead to huge discounting, he said.

Stock picks and investing trends from CNBC Pro:

“The CPI, the data they are looking at is old data. All they have to do is call Doug McMillon at Walmart, call any of the real estate fellas and ask what is happening to our apartment rents,” he said, pointing out that the rate of rent growth is now slowing.

The continuation of rate hikes will also cause a “major crash” in the housing market, Sternlicht predicted. The once-hot real estate market is swiftly slowing down, with mortgage rates for a 30-year fixed loan over 6% — up from 3.29% at the start of the year, according to Mortgage News Daily.
While the Fed’s target is 2%, inflation should run at 3% to 4%, Sternlicht said.
“Inflation that is driven by wage growth is fabulous. We should want wages to go up,” he said.

“You can pay higher rents, you can buy your equipment, you can go to the restaurant if you have high wage growth.”
As for when the “serious recession” will hit, Sternlicht believes it is imminent.
“I think [in the] fourth quarter. I think right now,” he said. “You are going to see cracks everywhere.”
Correction: Doug McMillon is CEO of Walmart. An earlier version misspelled his name.

WATCH LIVEWATCH IN THE APP More