Economy

Pivot? What pivot?Fed chief Jerome Powell stepped up the fight against inflation in his Jackson Hole speech on Friday, making it clear that there will be no “pivot” to a looser policy stance any time soon.Instead, U.S. households and businesses will have to endure some “pain” as the central bank raises interest rates as high as necessary to get inflation back under control.You can add investors to that list, especially equity investors.Asian markets will likely open deeply in the red on Monday following Wall Street’s slide on Friday. The S&P 500 fell 3.4%, its fifth biggest fall in almost two years, and the Nasdaq tumbled almost 4%. The Dow shed over 1000 points.Powell was blunt – inflation must be tamed, no matter the collateral damage. This means interest rates are headed higher, unemployment will rise, and growth will slow. “We must keep at it until the job is done.” Powell and co are not alone. ECB board member Isabel Schnabel told her Jackson Hole audience that central banks must continue raising rates even if economies go into recession, because de-anchoring inflation expectations is “even worse”. Policymakers in Asia are in a different spot, especially those in China and Japan. But some, like Bank of Korea governor Rhee Chang-yong, admit that their path will large part be determined by the Fed.The corporate calendar in Asia on Monday is light. If investors’ attention is drawn away from the macro, it may turn towards geopolitics – the U.S. Navy confirmed a Reuters report that two warships sailed through international waters in the Taiwan Strait on Sunday, a move likely to rile China’s military.Key developments that should provide more direction to markets on Monday: Australian retail sales (July)German inflation (August) More

Norway’s plan to curb electricity exports as Europe grapples with a severe energy crisis is a dangerous and selfish act that risks empowering Russia’s president Vladimir Putin, according to the Nordic country’s neighbours.The power grid operators of Denmark, Finland and Sweden have taken the unusual step of warning Norway that its proposal to stop exporting electricity amid concerns in Oslo over its hydro production undermined the European market.“It would be the first country in Europe to do it in electricity. It would be a very dangerous step and nationalistic. It’s very selfish behaviour,” Jukka Ruusunen, chief executive of Finland’s network operator Fingrid, told the Financial Times.“If we don’t work together it will help Russia. The best way to help Russia is to leave the team,” he added.The criticism underlines how Europe’s energy crisis has raised tensions among traditional allies, as power prices surge following Russia’s full-scale invasion of Ukraine in February.As western Europe’s largest petroleum producer, Norway will make record sums from the sale of oil, gas and electricity this year.But amid growing worries about how Europe will cope this winter both with high prices and the availability of energy, Norway’s proposal to curb electricity exports to boost its own security of supply has sparked anger.“There is a danger in any national measure in any situation like this — they are contagious. People might say if Norway can do it, so can we. Therefore I think it’s the wrong approach,” said Johannes Bruun, director for the electricity market at Energinet, Denmark’s grid operator. Denmark was not planning any retaliatory measures, he added.Andreas Bjelland Eriksen, state secretary in Norway’s petroleum and energy ministry, confirmed that the centre-left government in Oslo was looking at a mechanism that would curb production, and therefore exports, when the reservoirs that power its hydroelectric facilities “fall to very low levels”. Any mechanism would be in line with the “obligations” it has to Europe and would help the “stability of the entire integrated power system”, he added.However its neighbours disagree. Ruusunen noted that Norway was earning “so much money” in the wake of the Russian invasion. A cut in electricity exports would also help “populist, nationalist voices to split the market. In the end, everybody would lose,” he said.Norway is keen to present itself as a reliable supplier of petroleum after displacing Russia as the biggest source of gas to Europe. “If they do this, it will hurt the whole brand of Norway. The reliability and trust are one of the basic ingredients,” Ruusunen said.Trygve Slagsvold Vedum, Norway’s finance minister, sought to calm fears in Helsinki and Stockholm by pointing out that they received electricity from the north of Norway, where reservoir levels are high and prices low — unlike in the south of the country, which supplies Denmark, Germany, the UK and the Netherlands.But Ruusunen gave that argument short shrift, saying there was only a “very weak” and “very small” electricity supply line in the north.Norway’s government is under pressure to do more to alleviate rising power prices at home, particularly for struggling businesses in the south of the country.The country already provides the most generous power subsidies in Europe, paying 90 per cent of consumers’ bills over a certain level. More

Central bankers face a more challenging economic landscape than they have experienced in decades and will find it harder to root out high inflation, top multilateral officials and monetary policymakers have warned.The world’s leading economic authorities this weekend sounded the alarm about the forces working against the Federal Reserve, European Central Bank and other central banks as they combat the worst inflation in decades. Speaking at the annual gathering of central bankers in Jackson Hole, Wyoming, many said that the global economy was entering a new and tougher era.“At least over the next five years, monetary policymaking is going to be much more challenging than it was in the two decades before the pandemic struck,” Gita Gopinath, the IMF’s deputy managing director, told the Financial Times.“We are in an environment where supply shocks are going to be more volatile than we’ve been used to, and that’s going to generate more costly trade-offs for monetary policy,” she said.The pace of price growth has rocketed as supply-chain disruptions from Covid-19 lockdowns collided with high consumer demand fuelled by unprecedented fiscal and monetary support since the start of the pandemic. Russia’s full-scale invasion of Ukraine delivered a series of commodity shocks that created yet more supply constraints and price increases.These dynamics have forced central banks to aggressively tighten monetary policy to ensure inflation does not become more deeply embedded in the global economy. But given their limited capacity to address supply-related issues, many fear they will be forced to deliver much more economic pain than in the past in order to restore price stability.David Malpass, president of the World Bank, warned that central banks’ tools, especially in advanced economies, are ill-suited to address the supply-related inflationary pressures that are driving a significant portion of the recent inflation surge.“The rate hikes are having to compete with lots of friction within the economy, so I think that’s the biggest challenge that they face,” he said. “You’re hiking rates in the hope of reducing inflation, but it is being counteracted by so much friction within the supply chain and production cycle.”Key figures at both the Fed and the ECB made “unconditional” pledges to restore price stability. Jay Powell, Fed chair, on Friday warned that as a result a “sustained period” of slow growth and a weakening of the labour market were likely.The IMF’s Gita Gopinath said attendees had shown ‘humility’ over the huge uncertainty facing the global economy © David Paul Morris/BloombergGopinath cautioned that the ECB faced particularly acute trade-offs; there was “a real risk” that a stagflationary environment of languishing growth and high inflation will emerge in Europe, given the intensity of the energy crisis caused by the Ukraine war, she said.Malpass said that developing economies are also particularly vulnerable as global financial conditions tighten.“Part of it is higher interest rates and they have a lot of debt outstanding, so that increases both their debt service costs but makes it harder for them to get new debt,” he said. “The added challenge is the advanced economies drawing heavily on global capital and energy resources, creating a lack of working capital for new investments [elsewhere].”The enormity of the economic challenge confronting central bankers was summed up by Changyong Rhee, head of the Bank of Korea, when he said that whether the world would revert to a low-inflation environment was the “billion-dollar question”.Cutting through the buoyant atmosphere among Jackson Hole attendees — who, because of the pandemic, had waited two years to socialise and trade ideas face-to-face — was the overarching concern that the world and the economic relationships that underpin it had fundamentally changed.The sharp shift in economic dynamics left attendees doing some soul-searching. “There’s a lot of humility in the room [about] what we know and what we don’t know,” said Gopinath.The event revealed in stark detail the faultlines caused by the pandemic and Russia’s invasion of Ukraine.“We have the energy crisis, we have the food crisis, we have the supply chain crisis and we have the war, all of which has profound implications for the economic performance of the world, for the nature in which the world is interconnected and most importantly, for the relative prices of many, many things,” said Jacob Frenkel, the former governor of the Bank of Israel who chairs the board of the Group of 30, an independent consortium of ex-policymakers.Complicating matters are doubts about just how much policy tightening is needed in the face of unpredictable gyrations in supply and, in turn, prices.“Currently, we have to make our decisions against the backdrop of high uncertainty,” said Thomas Jordan, chair of the Swiss National Bank. “Interpreting the current data is challenging, and it is difficult to distinguish between temporary and sustained inflationary pressure.”According to the ECB’s Schnabel, the next few years are at risk of being known as the “Great Volatility” — in contrast with the past two decades, which economists called the “Great Moderation” because of the relatively tranquil dynamics.Many officials have come to believe that the structural forces that kept price pressures in check — chiefly globalisation and an abundant labour supply — have reversed.“The global economy seems to be on the cusp of a historic change as many of the aggregate supply tailwinds that have kept a lid on inflation look set to turn into headwinds,” warned Agustín Carstens, general manager at the Bank for International Settlements. “If so, the recent pick-up in inflationary pressures may prove to be more persistent.”Sceptics of this view say they are confident that the world’s leading central banks will be able to ward off entrenched high inflation. “The issue central banks need to focus on isn’t establishing inflation credibility,” said Adam Posen, president of the Peterson Institute for International Economics. “The issue is redoing the strategy and the inflation targets for a world where you’re going to have more frequent and larger negative supply shocks.”The 2 per cent inflation target that central banks in advanced economies have mostly abided by for decades came up repeatedly throughout the conference, with economists suggesting that it may need to be adapted to fit a more fractured global economy. Long before the inflation surge, the Fed in 2020 announced it would target inflation at a 2 per cent average over time, in order to make up for past periods of undershooting the target. Last year the ECB said it would tolerate inflation temporarily rising above 2 per cent at times.

Many economists advocated for a 3 per cent inflation target. According to Stephanie Aaronson, a former Fed staffer now at the Brookings Institution, it would give central banks more flexibility to look beyond supply shocks and support the economy during downturns.“If you’re coming down to 2 per cent and you can shorten the amount of low growth you need and also move to a better regime in the long-run, because you are less constrained by the zero lower bound, it seems to me like a win-win,” said Maurice Obstfeld, the former chief economist of the IMF, in an interview.When and how a central bank like the Fed and other central banks approach changes in their mandates will be critical, given their tenuous control on inflation and the risk that households’ and businesses’ expectations of future price increases could become entrenched.Karen Dynan, an economics professor at Harvard University who previously worked at the US central bank, said it would be “very risky” for the Fed and its counterparts to even broach the topic until they have reined in inflation.“They need to do everything they can to preserve their credibility — and maybe in some cases, restore their credibility — but they are going to have to think hard about what that new goal should be.” More

Poland’s access to 23.9 billion euros ($23.8 billion) in grants and 11.5 billion euros in cheap loans had been blocked due to a dispute over judicial independence.But in June the European Commission said it was approving Poland’s recovery plan, opening the way for Warsaw to get the cash. The move was approved by the Council of the EU, consisting of European economy and finance ministers.Four European associations – the Association of European Administrative Judges (AEAJ), the European Association of Judges (EAJ), Rechters voor Rechters and Magistrats Européens pour la Démocratie et les Libertés (MEDEL) – challenged the decision in the General Court of the EU.”This application seeks the annulment of the Council’s decision … on the grounds that the rule of law ‘milestones’ … fall short of what is required to ensure the effective judicial protection and disregard the judgements of the Court of Justice of the EU on the matter,” they said.The associations said their legal action did not automatically suspend the effects of the Council’s decision to approve the recovery plan but they said they might lodge interim measures seeking such a suspension.A Polish government spokesman said the Council’s decision remained valid and said the associations’ legal action was “groundless”.The Commission has long been at loggerheads with Poland’s ruling nationalists, accusing them of undercutting democracy. The Commission froze Warsaw’s access to the recovery money until it reversed some changes they made to the country’s judiciary.Poland adopted a law in May that replaced a controversial disciplinary chamber for judges with a new body. The EU said this had not addressed all problematic issues, although it said an official assessment had been made yet.($1 = 1.0039 euros) More

Hello and welcome to the working week. I’m helming today’s newsletter while Jonathan takes a break. We are approaching the end of August, characteristically known as the “silly season” when the news cycle slows, Britons go on holiday and politics takes a break. But this summer, the pace of frightful headlines has felt relentless, and the want for the UK government to return to action has never been stronger. While the country must hang on until September 5 for the Tories to install their new leader, the cost of living crisis deepens by the day. Inflation is forecast to reach 18 per cent, fuel bills are rising inexorably and colossal backlogs in the NHS are causing unusually high excess deaths. Industrial discontent has spread from the railways to the docks, post offices, law courts and even to funeral parlours. The honeymoon period that the new prime minister will enjoy will feel more like a budget mini-break. Europe is bracing for a further energy squeeze this week as Russia halts gas supplies through its largest pipeline to Germany for three days of maintenance work from Wednesday. Nord Stream 1 was already running at only 20 per cent capacity. Fears that the flow of gas will not resume afterwards, which alarmed German officials the first time this happened, have resurfaced. But good news can be found farther from home. Fifty years after the Apollo landings, humans are preparing to go back to the moon. Tomorrow, Nasa’s colossal rocket, the Space Launch System, will blast off from Florida in an unmanned test flight. It stands 100m tall, or as high as a 32-storey building. If successful, this first mission will make way for future human exploration in space as part of Nasa’s programme Artemis, named after the Greek moon goddess who was the twin of the Sun god Apollo.Don’t miss the annual FT Weekend festival in London next weekend, which is packed with fantastic live debates, tastings and more. You can attend online or in person. The Week Ahead newsletter subscribers can get a £20 discount using the promo code FTWFxNewsletters at: ft.com/ftwf.Economic dataIn the US, we have data on job openings and quits, plus unemployment and non-farm payrolls statistics on Friday. Last month, the surprisingly hot labour figures were enough for the Biden administration to dismiss concerns of a downturn in the world’s largest economy.Minutes from the latest meeting of the European Central Bank governing council, published a few days ago, showed concerns about soaring prices were mounting. The bank’s rate-setters noted a growing number of upside risks to inflation, which hit a record for the eurozone of 8.9 per cent in July. Flash inflation estimates by Eurostat, the European Commission’s statistics bureau, on Wednesday may compound the likelihood of another 50 basis point increase on September 8.CompaniesQuarterly results from China’s three biggest airlines will land this week, weighing in on assessments of just how disruptive President Xi Jinping’s zero-Covid policy has been to travel in the country. A sudden lockdown in the Hainan island this month has resulted in thousands of stranded travellers, denting tourist confidence in the world’s biggest consumer market and hopes of an early rebound, according to analysts. Any further hit to domestic mobility and discretionary spending in China will cause headaches for economic planners in Beijing. Sticking to China, on Wednesday Baidu will drop its second quarter report, and the central bank will publish first half figures. Gazprom will release its quarterly figures tomorrow. Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayHong Kong, monthly property dataSpain, annual meeting of the Central Bank Research Association takes place at the Universitat Pompeu Fabra, Ciutadella Campus, Barcelona, SpainVietnam, monthly inflation, trade, industrial output dataResults: Fortescue Metals Group Q4, Gazprom Q2, Massmart (HY), Continental and Sun Pharma hold their annual general meetingsTuesday Germany, preliminary consumer price index for AugustJapan, monthly crude oil imports data and monthly unemployment rateUK, British Retail Consortium monthly economic briefing and Bank of England monthly money and credit figuresUS, consumer confidence figures, job openings and quits for July, and Federal Housing Finance agency monthly and quarterly house price index Results: Air China Q2, Baidu Q2, Bank of China HY, Best Buy Q2, Bunzl HY, China Eastern Airlines Q2, China Southern Airlines Q2, CrowdStrike Q2, GoTo Q2, Harmony Gold FY, HP Q3, Old Mutual interim, Petronas Q2, Woodside Energy Group HYWednesdayCanada, monthly GDP figures for June Eurostat, the EU statistics agency, flash euro area inflation figures, economic sentiment indicator and business climate indicator for August. European Commission issues full business and consumer survey resultsFrance, monthly consumer price index preliminary results and producer price indexGermany, monthly labour market figures for AugustIndia, GDP figures for Q2Italy, monthly consumer price index preliminary results and producer price indexJapan, retail figures for July and Bank of Japan policy board member Junko Nakagawa gives speech at a meeting with local leaders in HakodateKenya, August inflation data Mexico, central bank publishes quarterly report on inflation and growthUganda, August inflation dataUK, FTSE Group’s quarterly review of the FTSE UK Index seriesResults: Aspen FY, Brown-Forman Corporation Q1, Dalata Hotel Group HY, Lukoil Q2, SpiceJet Q4 & Q1, Veeva Systems Q2, Woolworths FYThursdayEurostat, unemployment figures for JulyGermany, retail figures for July Italy, unemployment figures for July UK, Nationwide releases its monthly housing survey for August, Bank of England monthly decision maker panel dataUS, construction spending S&P Global, manufacturing PMI for Germany, Italy, au Jibun Bank Japan, UK, USResults: Broadcom Q3, Campbell Soup FY, Hormel Foods Q3, Pernod Ricard Q4, Lululemon Q2FridayEurostat, industrial producer prices in the domestic market for JulyGermany, import pricesUS, monthly unemployment figures including non-farm payrolls data World eventsFinally, here is a rundown of other events and milestones this week. Monday Brazil, presidential candidates take part in TV debateCzech Republic, EU ministers meet in Prague to discuss banning EU visas for Russians. Finland, Estonia and the Czech Republic are among the countries that have called for Brussels to implement an EU-wide ban on new tourist visas for Russians to enter the Schengen free travel area.Norway, Offshore Northern Seas oil and gas conference UK, summer bank holiday. Final day of an eight-day strike by 1,900 workers at the port of Felixstowe, the UK’s major port. Industrial action by Unite union members at Cooperative Funeral Care also comes to a close today.US, US Open Tennis Championships begins in New York City. Mega rocket Space Launch System lifts off for a test flight in the first mission of Nasa’s Artemis programme.Tuesday Czech Republic, EU ministers meet to discuss Russian aggression against Ukraine and its impact on the security of EU member statesEuropean Parliament committee for the inquiry into the use of Pegasus and equivalent surveillance spyware meets in Brussels, following the Greek wiretap scandal involving Nikos Androulakis, an MEP and the leader of the opposition Pasok partyKenya, president-elect William Ruto expected to be sworn in. However, the presidential contender Raila Odinga filed a petition to the country’s top court earlier this week challenging Ruto’s victory in this month’s election and demanding a rerun.Russia plans to hold strategic military exercises in the east of the country with China, India and other Asian countries Switzerland, the 10th meeting of States Parties to the UN Convention on Cluster Munitions takes place in GenevaTurkey, Victory DayUK, about 40,000 BT and Openreach members of the Communication Workers Union (CWU) go on a 48-hour strike from today in a dispute over pay. BT Group members of the CWU held the first round of industrial action on July 29 and August 1US, former president Barack Obama speaks at National Democratic Redistricting Committee fundraising event in Martha’s VineyardWednesday Europe, Nord Stream 1 pipeline to shut for three daysKyrgyzstan, Independence DayMalaysia, Independence DayPakistan, the former prime minister Imran Khan will appear in court as prosecutors consider charging him with contempt following a weekend speech in which he threatened police officers and a magistrateTrinidad and Tobago, Independence DayUK, Communication Workers Union members go on strike for a second day. US senator Bernie Sanders is expected to join the RMT rally in London in support of public transport workers. More than 1,000 Reach journalists walk out in a second strike day organised by the National Union of Journalists. Another two-day strike is planned for September 14-15. Reach’s UK titles include the Daily Mirror, Daily Express and Manchester Evening News. UK, in the evening, the final Conservative party hustings takes place. The leadership candidates Liz Truss and Rishi Sunak vie for support from Tory party membersThursdayThe European Medicines Agency meets to review new vaccine boosters by Moderna and BioNTech/Pfizer, which have been adapted to target the Omicron variantChina, Shanghai will reopen all schools after months of Covid-19 closuresUK, most schools return after the summer holidayUzbekistan, National Day holidayFridayPortugal, European Parliament president Roberta Metsola visits the countryUK, chancellor Nadhim Zahawi speaks about the priorities facing the next prime minister at a debate organised by the think-tank Policy ExchangeSaturdayQatar, National Day holidayUS, former president Donald Trump will take to the stage at a Republican rally in Pennsylvania in support of candidates Doug Mastriano and Mehmet Oz in their midterm election campaignsSundayChile, referendum to approve or reject a new constitution to replace the one enacted in 1980 by the regime of dictator Augusto Pinochet Germany, annual conference of World Association of the Major Metropolises More

Will jobs data signal a soft landing for the US economy?US jobs data for August are expected to come in lower than those for July, but remain in expansion territory — reflecting a 20th straight month of growth.Economists project that figures on Friday will show the US added 290,000 jobs in August, marking a 45 per cent drop after July’s figure of 528,000 significantly surpassed estimates.Jennifer Lee, a senior economist at the Bank of Montreal, said the August consensus reflects a sea change for employers, who may still need more workers, but have adjusted their expectations in a tight labour market where the unemployment rate sits at historical lows. BMO expects 250,000 jobs to have been added.“Let’s say you were looking for 12 people to hire and you’ve been finding it very difficult to find the right people,” Lee said. “You might be thinking, do I really need another 12 people to hire? Maybe we can get by with only six [hires] . . . and squeeze a little bit more out of the existing workforce.”Strong worker demand, combined with a recent durable goods report that reflected a monthly uptick in business investment, are indicators to Lee that the US economy is holding up even as the Federal Reserve raises interest rates to cool it.Even as big retailers have cut their full-year guidance, they have still reported strong sales figures that signal resilience in US consumer spending. Macy’s and Nordstrom have in recent days topped analysts’ expectations for quarterly revenues, and Home Depot reported record-high quarterly sales earlier in August.Lee said she expects a “significant slowdown” in the US economy in the second half of 2022 and into 2023, but is not ready to call this a recession.“If it’s a recession, it’ll be the strangest one ever,” she said. Jaren KerrHave soaring natural gas prices propelled eurozone inflation even higher?Eurozone inflation data for August will be closely scrutinised next week as investors question how far the European Central Bank will need to tighten monetary policy against a backdrop of soaring energy costs.Escalating oil and natural gas prices, stoked by Russia’s war in Ukraine, pushed eurozone inflation to 8.9 per cent in July. Economists polled by Reuters expect that figure to reach 9 per cent when data are released on Wednesday.Jane Foley, head of FX strategy at Rabobank, said increasing gas prices have caused investors to have a “real negative sentiment surrounding the eurozone that has built up over the past few weeks”. Contracts linked to TTF, Europe’s wholesale natural gas price, hit a record high on Friday above €343 a megawatt hour.The ECB is expected to raise interest rates by at least 0.5 percentage points at its September meeting in an effort to tackle record inflation. But investors are concerned that higher borrowing costs risk tipping the region into recession.Germany’s central bank chief has already warned that inflation will not subside by 2023 and that the record energy prices triggered by Russia’s supply squeeze would push the country’s inflation to above 10 per cent by the autumn. Nikou AsgariDid UK mortgage approvals drop further in July?UK mortgage approvals are expected to have fallen further in July, continuing a downward trend caused by rising mortgage rates and historically high inflation.Economists polled by Reuters expect the Bank of England to reveal that 61,750 mortgages were approved last month, down from 63,726 in June and from a peak of more than 100,000 in November 2020.Bucking the trend, Sandra Horsfield, an economist at Investec, expects a small increase [to 64,100] but added that “their trend is still pointing down — a picture that, as long as interest rates are rising steeply and economic prospects and confidence are deteriorating, should remain in place”.In June, the Bank of England’s data showed that the interest rate on newly drawn mortgages increased by 20 basis points (0.2 percentage points) to 2.15 per cent, the highest since 2016, following six consecutive policy interest rate increases by the BoE. Market pricing implies expectations that the policy rate will more than double to 4 per cent by early next year from its current level of 1.75 per cent, as energy and consumer prices continue to soar. As a result, consultancy Oxford Economics forecasts house prices will start shrinking on an annual basis from next year, down from the double-digit expansion of early this year.“Skyrocketing house prices are likely to feel the pull of gravity from the escalating cost of living crunch come autumn, with the impending rise to the energy price cap set to further fuel inflation and the spectre of higher interest rates to combat rising prices upping borrowing costs,” said Myron Jobson, senior personal finance analyst at investment service provider Interactive Investor. Valentina Romei More

JACKSON HOLE, Wyo./SEOUL (Reuters) – Bank of Korea Gov. Rhee Chang-yong said Saturday interest rates would need to continue increasing until inflation is in decline, but the country likely could not call a halt to its tightening cycle before the U.S. Federal Reserve.Dollar appreciation driven by Fed rate increases has added to inflation in many open economies around the world, including Korea, as the local currency falls in value.”We are now independent from government, but we are not independent from the Fed. So if the Fed continues to increase the interest rate it will have a depreciation pressure for our currency,” Rhee said in an interview with Reuters. Although the Bank of Korea began raising interest rates before the Fed, with its first hike coming a year ago, “whether we can end earlier – I don’t think so.”Inflation in Korea is largely the result of outside issues like energy prices, Rhee said, and, “if you ask me, whether I’m going to stop … what happens if the oil price increases again? … It’s very hard for us to know the exact timing, given the importance of the external shock.”Even though he expects domestic inflation to cool in August compared with the 6.3% rate seen in July, it is “too premature” to say it has peaked, especially since, as winter approaches, gas prices could again rise.The Bank of Korea raised interest rates by a quarter point at its last meeting to 2.5%, and said further increases of a quarter point “will be appropriate for some time as long as inflation paths remain as currently presumed.”The stopping point, Rhee said, would hinge on how inflation behaves. At this point, “I cannot say we are ahead of the curve,” Rhee said. “As long as inflation remains high, meaning 4-5% … then we will definitely continue to emphasize the normalization” of interest rates.Inflation in Korea is expected to run at around 5% by the end of 2022, and fall through 2023. Its central bank, like many others, targets 2% inflation.Rhee spoke on the sidelines of a Fed research conference where global central bankers used largely the same language to describe their common battle against rising prices. Though the headline problem is the same — inflation far beyond their established targets — the sources of price pressure and therefore the policy responses differ among countries.For smaller open economies like Korea the situation is particularly complex because of the spillover effects from policies set elsewhere.Even the fallout from Fed Chair Jerome Powell’s speech here on Friday, which sparked a sell-off in U.S. equity markets, would be watched, Rhee said, with an eye on how the won opens during Monday trading. The Fed chair promised U.S. interest rates would move to “restrictive” levels and remain there as long as needed to lower U.S. inflation.The won has dropped about 11% against the dollar this year, and local officials have stepped up surveillance of the currency’s movements.Rhee said so far he did not see the depreciation as driven by speculation or Korea’s economic fundamentals, but as part of the dollar’s rising global strength.”There are a few days we see movement that’s too excessive – but so far I think our exchange rate movement is very much in line with major currencies,” Rhee said. “This depreciation pressure due to the dollar strength actually is a bad factor for our inflation, because our imported prices increase a lot,” he said, but “the current depreciation pressure does not mean any liquidity problems or solvency problems, or credit problem for Korea.”Rhee said he risks from new geopolitical issues, with the Ukraine war sparking higher energy costs and tension between the U.S. and China.”It’s is a huge downside risk for us – geopolitics and the US-China tension is I think a very important factor,” he said. But he also said there was opportunity for Korea as the global economy reorganizes in the aftermath of the pandemic.The chief priority now though is to defeat inflation, a problem shared across the globe even though the causes may differ.“I can really see that the situation and challenges that the U.S. is facing are quite different from the headache and challenges that I am facing, and probably my European colleagues are facing,” Rhee said. But for each “it’s important for us to continue to prioritize inflation.” More

Truss’s leadership campaign is considering the plan as a “nuclear” option, the Telegraph quoted an unnamed source as saying, with other options including a 2.5% cut in VAT, from the current standard rate of 20%.A 5% cut on VAT would save the average household more than 1,300 pounds ($1,527) a year, and would cost taxpayers 3.2 billion pounds a month, according to analysis by the Institute for Fiscal Studies think tank, the Telegraph said.Separately, the Times newspaper reported Truss was also considering an emergency cut to income taxes and VAT. Some of her allies believe that the personal allowance, the rate above which people start to pay income tax, should be lifted, the paper said.The British government has been facing growing calls to provide immediate financial support to households, with energy bills set to jump 80% to an average of 3,549 pounds a year from October.Soaring energy bills, exacerbated by Russia’s invasion of Ukraine, have driven British inflation to 40-year-highs but the government’s response has been hampered by the race to replace Johnson that runs until Sept. 5.The government has said it is preparing options on a cost-of-living support package for the next prime minister to consider.Truss’s campaign is also considering extending a 5-pence cut in fuel duty, the Telegraph said.”Liz will consider options to help people but it would not be right for her to announce her plans before she has even been elected Prime Minister or seen all the facts,” a Truss campaign source said.Truss has said she favours tax cuts to expand the economy. Her leadership contender and former finance minister Rishi Sunak has pledged more direct support to help households struggling with surging energy bills.”Next month – whoever takes over from me – the Government will announce another huge package of financial support,” Johnson, writing in an article for the Mail on Sunday, said. ($1 = 0.8513 pounds) More