Economy

SINGAPORE/LONDON (Reuters) – The dollar held near recent peaks on Thursday, supported by the view that the Federal Reserve will keep tightening policy aggressively, while the Swiss franc hits its strongest against the euro since the Swiss National Bank removed its floor under the currency in 2015.The franc rose 0.5% against the euro to as high as 0.9529 francs, its strongest level against the single currency since Jan. 15 2015, the day the SNB scrapped its minimum exchange rate of 1.20 francs per euro. The franc also strengthened 0.7% against the dollar to 0.95645 francs. “The Swiss currency right now is the only safe haven in the G10 and I think that’s appealing to investors, as next week with the FOMC it could be another choppy week for stock markets if the (Fed) raises by 75 or even a hundred basis points,” said Kenneth Broux, senior strategist at Societe Generale (OTC:SCGLY). The Swiss National Bank also meets next week and Broux notes speculation that they could join the Fed and ECB with outsized rate increases. Money markets are fully pricing in a 75 basis-point rate rise from the SNB, with just under a 50% chance of a full percentage-point hike, according to data from Refinitiv. The euro was little changed at $0.9982, not too far from its 20-year low of $0.9864 hit last week, while sterling was 0.4% softer at $1.1492. The dollar was up 0.3% against the yen at 143.55, having fallen 1% on Wednesday on news that the Bank of Japan had checked on exchange rates with banks – a possible preparation for yen buying.This left the dollar index firm at 109.71, holding onto its 1.5% gain from Tuesday, when U.S. inflation data came in hotter than expected. That caused markets to reposition for a Fed seemingly left with little choice but to go for another large hike at its rate-setting meeting next week. Fed funds futures are now pricing in around 30% chance that the Fed will hike rates by 100 basis points, with at least a 75 basis point increase fully expected by the market.Traders will be watching U.S. retail sales and industrial production data due later in the day, since, as ING analysts note, data is the most likely thing to cause a dovish repricing. The Fed, in recent months, has been unwilling to push back on hawkish market expectations. Nonetheless, ING conclude: “We see a good chance that today’s data will not trigger any material re-pricing lower in Fed rate expectations, and the hawkish inertia into next week’s meeting means that the dollar can stay supported.” Investors continued to consider whether Japanese authorities really would intervene to support their battered currency, which has fallen nearly 20% this year. But some market watchers expressed scepticism that there would be a direct intervention, or that it would have much lasting impact. Satsuki Katayama, head of a ruling party panel on financial affairs in Japan, told Reuters that the country lacks effective means to combat the yen’s sharp falls.A record Japanese trade deficit for August has also underscored the bearish case for the yen.China’s yuan traded offshore slipped to seven per dollar in European hours on Thursday, the first time since July 2020, as markets continue to test Chinese authorities’ willingness to defend the symbolic level. In crypto markets, ether did not move significantly after Vitalik Buterin, Ethereum inventor and co-founder, wrote on Twitter (NYSE:TWTR) that a major software upgrade to the Ethereum blockchain aimed at slashing its energy usage has been completed. The token, which underpins the ethereum network, was down 3%. Bitcoin was a touch softer at just under $20,150. More

UK public satisfaction with how the Bank of England handles inflation has fallen to the lowest level on record, according to official data on Thursday.In August, one-third of people in the UK were dissatisfied with how the central bank was controlling inflation, its own survey found.This is the worst result since records began in 1999 and pushed net satisfaction to minus 7 per cent, also a record and the only other negative reading since May’s minus 3.The data come a week before the next meeting of the BoE’s Monetary Policy Committee, where it is expected that interest rates will be raised for the seventh consecutive time as the bank seeks to tame high prices.Myron Jobson, senior personal finance analyst at the investment broker Interactive Investor, said the response to the survey, was “by no means a glowing endorsement” of the BoE’s approach to interest rates. Most economists expect the BoE to lift the base rate from its current 1.75 per cent to curb inflation, which was at 9.9 per cent last month. That is the highest in the G7 group of leading economies and almost five times the bank’s 2 per cent target. Markets and economists are split between a 50 basis and 75 basis points increase.Andrew Goodwin, chief UK economist at the consultancy Oxford Economics, said the £150bn energy support package announced by the government last week, which will limit yearly domestic bills to £2,500, had lowered expectations for peak inflation. But he said that “the support to disposable incomes offered by the cap means the MPC may judge medium-term inflation will be higher”. The bank could “use looser fiscal policy as a reason to continue raising rates aggressively”, he added. While Goodwin expected a 50 basis points rise, Ellie Henderson, an economist at the investment bank Investec, said there was “certainly the risk that more MPC members will join the hawkish camp, swinging the majority to a three-quarter point move”.Respondents to the BoE survey, which occurs every three months, expected inflation over the coming year to be 4.9 per cent, on average, up from 4.6 per cent in May and the highest on record.

This is a sign the public thinks high inflation has become largely entrenched in the economy. People also think inflation will continue to remain high in the longer term. The inflation rate in five years’ time was expected to be 3.1 per cent, well above the target of price stability even if marginally down from 3.5 per cent in May. The latest inflation rate was perceived to be accelerating to 7.6 per cent, up from 6.1 per cent in May and the highest on record.A high-inflation environment is seen as detrimental to the economy and responsible for higher interest and mortgage rates. Some 75 per cent of respondents expected interest rates to rise in the year ahead, with about two-thirds expecting a negative impact on the economy from high inflation. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyThe stunning shift in the market mood and prices over the past week is testament to the underlying instability in the current environment for policymakers and investors. And it is an instability that will intensify in the coming months.The catalyst for what many labelled “market carnage” on Tuesday — 3 to 5 per cent single-day losses in major US equity indices — was, of course, an ugly inflation report. And the August figures for the US were disappointing in so many ways including, most importantly, a higher month-on-month increase and broadening in drivers of core inflation.Judging from the dramatic surge in the 2-year government bond yield, as well as moves elsewhere in Treasuries, markets found themselves scrambling to price in a “HFL” moment — that is, rates that are going Higher, getting there Faster, and staying there Longer.This time around, the delay in investors accepting a more rapid reversal in the highly supportive approach for markets by central banks had little to do with the prior inclination of policymaking officials to weaken the anti-inflation policy message. This tendency had previously helped keep alive the hope of an immaculate soft landing and a rapid pivot away from a tightening liquidity regime.But since the late August Jackson Hole speech of Fed chair Jay Powell, the US central bank’s officials have been unusually consistent in stating their unconditional commitment to battle unacceptably high inflation, as well as in conveying the policy implications.For policymakers and investors, there will be more bracing realities to digest in the months ahead.First, global growth fragility is increasing. Europe is yet to supplement the fiscal-driven protection of households from high prices with an orderly energy allocation approach that minimises immediate and longer term structural damage to the economy.China has yet to find a politically acceptable way out of the Covid “lives-versus-livelihoods” trap that, without progress in effective country-wide vaccination, undermines the country’s contribution to demand and supply in the global economy. Even the US, the strongest of the systemically important economies, faces internal growth headwinds. And all this at a time when inflation pressures, and the demand destruction that comes with that, will only dissipate slowly.As this develops, market inconsistencies will be become harder to sustain. With higher short-dated yields, the TINA edge (There Is No Alternative) that stocks have long possessed is being eroded. Longer dated bonds now offer better protection against a big global slowdown and financial system stress. And the economic and financial risks of such a strong dollar, both at home and more importantly internationally, are harder to sidestep.Needless to say, this is not a good environment for central banks to be playing catch-up. The risk of yet another policy mistake, already uncomfortably high, is increasing.Given the hot inflation numbers, the Fed has no choice but to front-load its policy response, including an unprecedented third, consecutive 0.75 percentage point rise next week. This will accompany a pick-up in the pace of balance sheet reduction by the Fed and, I suspect, an upward revision in forecasts for the peak of this interest rate cycle.Meanwhile, the European Central Bank has to incorporate the implications of considerable fiscal policy efforts to offset the impact of the energy crisis on households and business.The natural inclination to soften the monetary policy stance in the face of global growth fragility and unsettling financial market instability collides with the reality of persistently high inflation and the urgent need to restore policy credibility. Indeed, central bank hesitation would only serve to worsen the scale and complexities of 2023’s economic and policy challenges.This week’s market turmoil is not just about the clash between markets’ recent over-optimism and economic and policy realities. It is also a reflection of investors better coming to terms with the complex uncertainty that confronts both policymakers and their own approach to asset allocation.The good news lies in the twin prospect of economies putting behind them a long period of inefficient allocation of resources, and value being restored to markets heavily distorted by over-protracted central bank intervention. For such prospects to be realised, economies and markets still have to navigate the higher possibility of policy mistakes, market stress, and the behavioural traps that typically accompany whipsaws in investor sentiment. More

Workers in parts of Europe and South America are becoming increasingly successful in securing deals linking wages to inflation, a trend closely monitored by monetary policymakers as they seek to keep price rises under control. Linking people’s pay to inflation remains much less commonplace than during the 1970s, when it was widespread in several economies — including the US and UK. But deals that include indexation clauses never went away in some countries and there are signs of a resurgence in places such as Spain and Brazil. Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, often dubbed the central bankers’ bank, said that by distorting market signals, indexation made inflation harder to shift. “Decisions are not going to be the right ones,” Borio said. “With indexation [inflation] is embedded, it’s what happens [automatically].”In Spain, where annual inflation in August was 10.5 per cent and electricity bills are up by 70 per cent over the same period, unions are winning negotiations for more of their members’ contracts to be indexed to prices. Such contracts already cover almost a third of Spanish collective wage agreements, up from less than a fifth at the end of 2021, and are expected to reach half next year, according to the country’s central bank. Bank of Spain governor Pablo Hernández de Cos warned earlier this year about the risk of a dreaded “wage-price feedback loop”, where inflation becomes harder for central banks to control and feeds through into even more pressure for higher wages. Defending the deals, the UGT, one of Spain’s biggest unions with 960,000 members, said workers should not be “once again the ones to pay the cost of a crisis.” So far, Spanish wages are rising well below inflation, like those of most workers across Europe. Spanish bank CaixaBank has built a wage tracker based on customers’ payslips, which showed they rose 2.5 per cent in the year to June, up from 2.4 per cent in May. However, figures published by Eurostat, the European Commission’s statistics bureau, on Thursday showed hourly salaries increased by 4.1 per cent in the eurozone in the second quarter of 2022, compared with the same quarter the previous year. The surge — the strongest in at least a decade — surprised economists, who had expected the pace of wage growth to fall from 3.3 per cent in the first quarter to 1.8 per cent in the three months to June. If strong wage growth and the trend towards indexation continues, it is likely to become a mounting concern for this generation’s monetary policymakers. The European Central Bank, which itself rejected calls from its staff union for inflation-linked pay rises earlier this year, discussed the signs of indexation becoming more widespread at its July meeting. In some countries — including eurozone members such as Luxembourg, Cyprus, Malta and Belgium — indexation never entirely went away. But Luxembourg this year suspended pay rises due under its indexation rule and gave workers tax credits instead. In Belgium, there is a debate brewing over rules that automatically adjust the pay of most public and private sector workers in line with a “health index” of inflation that excludes fuel, alcohol and tobacco prices. The rule means hourly wage costs in Belgium are set to rise 12 per cent in total over the next two years, the country’s central bank has forecast, 4.8 percentage points more than in France, Germany and the Netherlands, where indexation is less common. The country’s Unizo employers’ association said wage growth at that level would be “devastating for our economy and employment” and called for an “index skip” by the government to lower expected wage rises this year. That idea has been rejected by Lars Vande Keybus, economic adviser at ABVV, Belgium’s largest union with 1.5mn members. “Purchasing power is extremely important if we do not want to fall into a deeper recession next year,” he said. The practice also offers a means to protect the most vulnerable from cost of living crises — in many economies minimum wages and pensions have long been indexed to prices. But in Brazil and Argentina, economists say the practice is becoming an increasingly important reason why the recent surge in inflation is becoming entrenched. After years of having to settle for meagre wage growth, more than 70 per cent of pay rises awarded to Brazilian workers in June were at or above the rate of consumer price inflation.Alessandra Ribeiro, an economist at consultancy Tendências in São Paulo, said that until 2019 indexation accounted for 32-35 per cent of the rise in consumer prices. Today, it accounts for 40 per cent, she said, adding: “It is a huge problem. It creates enormous difficulties for the central bank to bring inflation under control.”Brazil’s minimum wage was increased 10 per cent at the end of last year to adjust for price growth. In neighbouring Argentina, where inflation is expected to reach 90 per cent this year, indexation is also becoming more entrenched, spreading to private healthcare costs this year. Surging prices have meant annual pay rounds are being replaced by semi-annual and even quarterly negotiations in Argentina. “The faster spread of shocks [encouraged by indexation] can cause a series of bad outcomes,” said Santiago Manoukian, chief economist at consultancy Ecolatina in Buenos Aires. More

Good morning. The US shale industry has warned it cannot rescue Europe with increased oil and gas supplies this winter amid fears that a plunge in Russian exports will send crude prices soaring back above $100 a barrel.Even though oil markets have softened in recent weeks, the respite could end when an EU embargo on Russian sales comes into full effect later this year. US Treasury secretary Janet Yellen this week warned the embargo “could cause a spike in oil prices”.However, US shale executives sitting on vast oil and natural gas reserves that could be used to alleviate a European energy crunch say they will be unable to step up supplies quickly enough to prevent winter shortages.“It’s not like the US can pump a bunch more. Our production is what it is,” said Wil VanLoh, head of private equity group Quantum Energy Partners, one of the shale patch’s biggest investors.“There’s no bailout coming,” VanLoh added. “Not on the oil side, not on the gas side.”Related news: Sticking with the oil and gas industry and Shell’s chief executive Ben van Beurden has announced today he is to step down after a decade in the job.Thanks for reading FirstFT Americas. Here is the rest of today’s news — GordonFive more stories in the news1. US Senate panel approves $6.5bn bill to fund weapons for Taiwan The Taiwan Policy Act was passed by a margin of 17-5 by the US Senate foreign relations committee. The bill, which still requires approval by the full Senate and the House, marks the first time the US would directly finance the provision of weapons to Taiwan.2. California sues Amazon California has sued Amazon over claims that it punishes third-party sellers who offer their products more cheaply on other websites, in the latest legal action against the $1.3tn tech giant by prosecutors and regulators in the US and Europe.3. Key moment for crypto market Ethereum, the world’s second-biggest blockchain, has completed a long-awaited upgrade to its system in a move expected to slash its energy costs and intended to prepare the ground for more use of crypto technology in mainstream finance. Vitalik Buterin, Ethereum co-founder, said the upgrade, known in the industry as “The Merge”, had been completed earlier today.4. China’s state banks cut deposit rates for first time since 2015 Some of China’s biggest state-run banks have cut deposit rates for the first time since 2015, as Beijing searches for ways to boost flagging growth in the world’s second-largest economy without risking runaway depreciation of the renminbi.5. Britain looks to scrap bank bonus cap Kwasi Kwarteng, chancellor, is seeking to scrap Britain’s cap on bankers’ bonuses, introduced after the 2008 financial crash, in a controversial move to boost the City of London’s global competitiveness. Kwarteng argues the move will make London a more attractive destination for top global talent and will be a clear signal of his new “Big Bang 2.0” approach to post-Brexit City regulation.The day aheadEconomic data US retail sales figures will be closely watched following higher than expected consumer price inflation figures this week. The US labour department releases data on new applications for unemployment aid and a series of data releases today should offer insight into the state of manufacturing, including US industrial production, the Empire State manufacturing survey and the Philadelphia Fed’s business outlook survey.Joe Biden to warn of threat to US democracy The US president will again focus on the threats to US democracy and political violence in a speech later today. The remarks are part of the United We Stand Summit at the White House and come after Biden this month called the Republican party and Donald Trump’s supporters a “threat to this country”.Shanghai Cooperation Organisation forum Chinese president Xi Jinping will travel outside China for the first time since the pandemic began to attend the forum in Kazakhstan, which starts tomorrow. Also present will be Russian counterpart Vladimir Putin, India’s prime minister Narendra Modi, Iran’s president Ebrahim Raisi and Pakistan’s prime minister Shehbaz Sharif.Northern Ireland protocol deadline It is the last day for Downing Street to submit a formal response to seven legal actions launched by the EU against Britain over breaches of the Northern Ireland protocol, as grace periods allowing lighter touch trade controls are due to expire. (Guardian, FT)What else we’re reading Scenes from the end of an Elizabethan age The state funeral for the Queen on Monday will be a solemn ceremony but in the meantime the public waits to see the body lying in state and pay their respects at Buckingham Palace. Imogen West-Knights joined mourners, lost-looking tour groups and history rubberneckers outside the royal residence. Thank you to everyone who took part in yesterday’s poll. Sixty-four per cent of respondents said they did not want King Charles III to speak up on political issues, while 27 per cent of respondents said they did.

Hundreds of thousands of people are travelling to London to mourn the Queen © Benjamin McMahon

Citi opens Málaga hub for junior bankers Málaga is better known for its sunshine and food than banking. But yesterday 27 young recruits started at Citi’s new hub for junior investment bankers. Rivals have dismissed it as a gimmick but the US bank claims it is a way of offering a “better work-life balance” for its new starters. Will it work?The Republicans are trying hard to defeat themselves Until a few weeks ago, it was taken for granted Republicans would win a clean sweep in November’s midterm elections. Three things have changed, writes Edward Luce.Axel Springer boss used Bild to campaign against Adidas Chief executive Mathias Döpfner used his best-selling tabloid to campaign against Adidas’s decision to stop paying rent during the pandemic, publishing more than 20 articles chiding the sportswear retailer for a planned rent freeze — without disclosing that he was its landlord in Berlin.Defiance in the rabbit warren of Kyiv’s presidential palace Last week, Gillian Tett took a trip down the darkened corridors of the Ukrainian presidential palace, where despite fighting off a brutal Russian invasion for seven months, President Volodymyr Zelenskyy and his team are intent on delivering the message of business as usual.More on the war: Ukraine’s president was involved in a car accident earlier today after returning to Kyiv from the eastern Kharkiv region. He sustained no serious injuries.Italians at boiling point over how to cook pasta with less gas Can you cook pasta with the gas turned off? As fuel bills surge, Rome’s advice to citizens to save energy with “virtuous actions” — including turning down the heat under saucepans — has prompted a culinary debate, Amy Kazmin writes.Go deeper: What is your inflation rate? The FT launches its personal inflation calculator to allow you to calculate the impact of rising prices on your budget.TechnologyIn the early 2000s, if you wanted a presence on the web, you had to build it, either by writing HTML code or using primitive services such as Yahoo’s GeoCities. Now, as Dave Lee explains, the “no-code” movement allows users to build powerful websites or apps without writing any code. More

There are few things more heartening than the comeuppance of a brute, especially when that comeuppance liberates thousands of people from the brute’s ability to terrorise them. But Ukraine’s exhilarating advance on the battlefield in the past week or so carries lessons beyond the satisfaction of good’s victory over evil.I remember well conversations in the first days after President Vladimir Putin’s attack about whether to arm Ukraine’s government. A common view was that because the country was bound to be overrun by Russia’s army in a matter of days, sending arms would only make things worse by encouraging a permanent but permanently doomed guerrilla effort: “a new Afghanistan on our doorsteps” as some put it. In these conversations I insisted that even those who expected Ukraine to lose at least owed them a chance at defending their country. Fortunately, the Ukrainians’ bravery and fighting prowess stopped the assault on Kyiv fast and spectacularly enough to rally more western support. That support made this month’s counter-offensive possible.Expectations about what will happen play a deep role in what actually does happen. Ukraine’s stout defence in the battle for Kyiv, by confounding expectations of a quick defeat, made the political winds shift in the west. This month’s counter-offensive, by confounding western expectations of a dragged-out positional war, has shifted them again. Already, as my colleague Henry Foy reports, the view is taking hold that better and faster weapons delivery could hasten rather than delay an end to the war, and a better end at that. Western countries are now said to be discussing providing Kyiv with fighter aircraft, a move that was previously rejected as too likely to provoke Putin.If these expectations had shifted earlier, or shifted more, it was likely that Ukraine would have been given more military aid sooner. Its defence and counter-attacks would then have been even more impressive, thus validating those very expectations. Conversely, if those who argued Ukraine didn’t stand a chance had won the rhetorical battle, the effects of such a victory may well have proved them right in the real war too. Politicians know this function of expectations very well. Putin, always the spy, has presided over information warfare against the west for as long as he has been in power. His success (on which he has spent significant amounts of money) can be measured in the shocking number of otherwise thoughtful people around the world who seem content to lay the ultimate blame for torture and rapes in Bucha and elsewhere at the door of western democracies. From the start of the war Volodymyr Zelenskyy, Putin’s opposite in so many ways, grasped the importance of shaping a domestic and international narrative, and his excellence in communication has added to the bravery and organisational skill of Ukrainians on the ground. Economists have an analogous, if less refined, understanding of expectations. Game theory, which analyses interactive economic situations, shows how people’s behaviour can be shaped by their expectations of the behaviour of others in such a way that expectations become self-fulfilling. Under certain conditions, if everyone expects the bad outcome to occur, it does; and if everyone expects things to work out better, they do — all because of the actions people choose given what they expect others to do. Financial price fluctuations can exhibit this pattern. So can demand-led economic cycles driven, as Keynes put it, by “animal spirits”.Lift the gaze up from narrow models, and self-fulfilling expectations help make sense of large-scale phenomena. Five years ago, I wrote about economics Nobel laureate Robert Shiller’s work on “narrative epidemics” and how when shared stories take hold of enough people’s minds, they change reality itself. One example back then was how the election of Donald Trump — a master of storytelling if nothing else — prompted a boost to economic sentiment among his supporters, which probably kept the economy humming along nicely.So here is one similarity between war and the economy. Because expectations matter, both are profoundly unpredictable. And neither is fully determined by “hard” factors but influenced by mass psychology. Take today’s energy prices. These are, in part, based not just on current physical constraints but on the expectations of those trading in the financial hedging markets for prices in the future. Nobody has any idea whether next year’s physical energy markets will match what financial traders expect today. But those expectations influence the prices companies and consumers pay for physical energy today. And if those expectations change — for example, from signs of government intervention, or as the fact of Europe’s rapidly filling gas reservoirs sinks in — so could the nature of the energy price crisis, even with little immediate change in the physical constraints.As my colleague Gillian Tett recently pointed out, Shiller’s insights also apply to central banking. The debate on inflation boils down to whether people will start expecting current inflation to persist — and, therefore, cause it to persist by driving up wages and prices further. The few of us who think central banks are wrong to kill our current strong jobs growth point to how longer-term inflation expectations remain quiescent. The majority that supports tightening thinks that because the economy is overheating, only tightening can prevent expectations from shifting up (even when they agree that no tightening would be necessary if inflation only reflects one-off supply shocks). But, in one way, central bankers face a trade-off that Ukraine’s army doesn’t. Ukraine can change expectations for the better by changing the situation on the ground for the better. Central bankers’ chosen strategy for changing inflation expectations for the better, however, causes harm to the economy by killing job and income growth. If instead they can convince people that inflation will go away by itself as supply shocks fade away, they will not have to cause harm to the economy in the process. My own view is that because that is indeed what people seem to expect, it is a gross policy error to make borrowing costlier.Consider, then, how Ukraine’s military success may shape expectations in Russia. One of the books I read as a student that I remember best is Étienne de La Boétie’s Discourse on Voluntary Servitude, which points out that a dictator can only have power over others insofar as they choose to obey him or her. In pure physical terms, an individual could never dominate a nation, but dictatorship is possible through a network of self-reinforcing fears that those who rebel will be punished. That is why revolutions, when they happen, happen so fast, or why once taboos are broken, they are hard to restore. When enough people stop expecting enough others to comply, reasons evaporate for anyone to comply at all. Call it the Wizard of Oz theory of power: once the expectation of enforcement falls away, so does any ability to enforce.The most intriguing impact of Ukraine’s recent victories, therefore, is in Moscow. Explicit dissent against the war seems to have broken out (as has the open use of the taboo word “war”), from critical talk show guests to municipal officials calling for Putin’s impeachment. This may matter, or it may not. But we won’t know how many Russians would oppose the war if they did not expect to be punished for it until enough Russians no longer expect to be punished for it. The widespread belief that it is possible to oppose a dictator has a way of making just that happen. If Ukrainians keep succeeding as they have, things could change much faster in Russia than we think.Other readablesIn another effect of changed expectations, I write in my column this week that Vladimir Putin has forced the EU into the energy union it should have built long ago.As you will know from last week’s Free Lunch (and several more before), I take a deep interest in wealth taxes. So I was intrigued to learn from new research on more than a hundred years of German wealth inequality that the country imposed a large one-off tax on wealth in 1948. “Owing to this wealth tax, Germany became one of the most equal countries before her postwar economic miracle took off,” the researchers say.Expect more stories like this one: durable goods manufacturers — in this case, Electrolux — facing a double whammy from retrenching consumers and overstocked inventories from back when nobody could get enough of industrial goods.Numbers newsThe UK economy is flatlining. But maybe inflation is, too.Overall US inflation was only 0.1 per cent month on month in August, thanks to falling energy prices. Outside of energy, however, core inflation rose 0.6 per cent, or more than 6 per cent on an annualised basis. The Guardian offers an explainer of the UK royal family’s finances. More

Inflation is less about pandemic and war surprises and more about economic momentum. That could make the solution more painful.When inflation began to accelerate in 2021, price pressures were clearly tied to the pandemic: Companies couldn’t produce cars, couches and computer games fast enough to keep up with demand from homebound consumers amid supply chain disruptions.This year, Russia’s war in Ukraine sent fuel and food prices rocketing, exacerbating price pressures.But now, as those sources of inflation show early signs of fading, the question is how much overall price increases will abate. And the answer is likely to be driven in part by what happens in one crucial area: the labor market.Federal Reserve officials are laser-focused on job gains and wage growth as they quickly raise interest rates to constrain the economy and slow rapid price increases. Officials are convinced that they must sap the economy of some of its momentum to wrestle the worst inflation in four decades back down to their goal of 2 percent.The way they do that is by slowing spending, hiring and wage gains — and they do that by raising the costs of borrowing. So far, a pronounced cool-down is proving elusive, suggesting to economists and investors that the central bank may need to be even more aggressive in its efforts to temper growth and bring inflation back down.As data this week showed, prices continue to soar. And, while the job market has moderated somewhat, employers are still hiring at a solid clip and raising wages at the fastest pace in decades. That continued progress seems to be allowing consumers to keep spending, and it may give employers both the power and the motivation to increase their prices to cover their climbing labor costs.As inflationary forces chug along, economists said, the risk is rising that the Fed will clamp down on the economy so hard that America will be in for a rough landing — potentially one in which growth slumps and unemployment shoots higher.It is becoming more likely “that it won’t be possible to wring inflation out of this economy without a proper recession and higher unemployment,” said Krishna Guha, who heads the global policy and central bank strategy team at Evercore ISI and who has been forecasting that the Fed can cool inflation without causing an outright recession.Rising wages could become a more primary driver of higher prices.Hiroko Masuike/The New York TimesThe challenge for the Fed is that, more and more, price increases appear to be driven by long-lasting factors tied to the underlying economy, and less by one-off factors caused by the pandemic or the war in Ukraine.Consumer Price Index data from August released on Tuesday illustrated that point. Gas prices dropped sharply last month, which many economists expected would pull overall inflation down. They also thought that recent improvements in the supply chain would moderate price increases for goods. Used car costs, a major contributor to inflation last year, are now declining.Yet, in spite of those positive developments, quickly rising costs across a wide array of products and services helped to push prices higher on a monthly basis. Rent, furniture, meals at restaurants and visits to the dentist are all growing more expensive. Inflation climbed 8.3 percent on an annual basis, and picked up by 0.1 percent from the prior month.The data underscored that, even without extraordinary disruptions, so many products and services are now increasing in price that costs might continue ratcheting up. Core inflation, which strips out food and fuel costs to give a sense of underlying price trends, reaccelerated to 6.3 percent in August after easing to 5.9 percent in July.Inflation F.A.Q.Card 1 of 5What is inflation? More

South Korea said it was reviewing “contingency plans” to tackle foreign exchange volatility, with the Korean won hovering at a 13-year low against the US dollar as currencies across Asia come under pressure from an increasingly hawkish Federal Reserve.Finance minister Choo Kyung-ho stepped up verbal intervention on Thursday to try to stem an acute sell-off in the South Korean currency, saying authorities would take necessary measures if there was excessive volatility.“The exchange rate is rising too fast and people are concerned about this. So we are closely monitoring the market situation,” he told a session of parliament. “We are staying on alert and reviewing various contingency plans through inter-ministry discussions.”The won extended losses on Thursday, falling to Won1,393.7 against the dollar, its lowest level since March 2009. The currency of the export-driven economy has weakened 17 per cent against the dollar this year. The Bank of Korea warned this month that the won’s recent fall had been too fast relative to the country’s economic fundamentals. The central bank raised its policy rate in August by a quarter point to 2.5 per cent and signalled more tightening to counter the won’s weakness.Analysts expected the currency to continue its descent until the end of this year, dragged down by the Fed’s aggressive monetary tightening and Seoul’s ballooning trade deficits.“Asian currencies, including the won, will remain under pressure for the time being as the Fed continues its outsized rate hikes while Japan maintains its loose stance, China is cutting rates and South Korea is not raising rates as much as the US,” said Hwang Se-woon, a researcher at Korea Capital Market Institute. “But the won is likely to fall further, although its pace is unlikely to be as rapid as the yen’s or yuan’s.”

The weaker won has heightened inflationary pressure by increasing import costs, as Asia’s fourth-largest economy relies heavily on energy imports. South Korea’s inflation rate slowed to 5.7 per cent in August, from 6.3 per cent in July, a 24-year high.But the finance minister has forecast South Korean inflation to peak in October. The country reported a record trade deficit of $9.47bn in August as export growth slowed while higher prices of oil and other commodities inflated the country’s import bill.“We do not expect the trade account to turn supportive of the won in the near term,” Standard Chartered said in a recent research note. “Slowing global growth and external demand will likely keep the trade account under pressure, outweighing any benefits from a pullback in commodity prices.” More