Economy

Americans are feeling the pain of petrol inflation every time they pull up to the pump. But a supersized surge in the cost of diesel is adding to economically damaging price rises just about everywhere else. The national average price of diesel hit a fresh peak of $5.72 a gallon this week, up 75 per cent over the past year, according to data released on Monday by the US Energy Information Administration. It is one of the sharpest fuel cost increases on record. The national average price of petrol, which cracked $5 a gallon on Saturday, has risen about 60 per cent over the same time.The surge in the price of diesel, a workhorse fuel, is coursing through the US economy, helping to push price increases in the world’s largest economy to 40-year highs. US government data on Friday showed the inflation rate in May accelerated to 8.6 per cent compared with the previous year, the highest level since 1981.“Big parts of the economy run on diesel, from agriculture to manufacturing, and thus the surge in diesel prices is driving up prices broadly,” said Mark Zandi, chief economist at Moody’s, who says diesel prices account for about a fifth of the rise in consumer inflation.The nation’s fleet of truck drivers is at the frontline, with small and big trucking companies saying they are passing hefty fuel surcharges on to their customers to try to offset the sudden rise in costs.“It’s devastating really to everybody . . . because it’s so inflationary,” David Owen, president of the National Association of Small Trucking Companies, said of the sharp rise in diesel prices.“Fuel surcharges are being implemented across the board.”Bart Plaskoff, president of Summit Trucking in Dallas, Texas, said he was paying $70,000 more a week on fuel than he was at the beginning of the year and was telling his truckers to limit idling time and to try to fill up in states with lower taxes to save money.Even accounting for fuel surcharges, he warned that some truckers could struggle to survive the high costs, which could pull trucks off the road and further drive up transportation costs. High fuel prices “could impact the industry as a whole long after fuel prices stabilise. Truckers are the backbone of the American economy. Without them you have no groceries, gas, baby formula, prescriptions, furniture, or even your Amazon package,” said Plaskoff.Because they are less likely to be able to negotiate rates or receive fuel discounts, small trucking companies are those hit hardest by high diesel prices. According to the American Trucking Associations, 97 per cent of trucking companies run 20 trucks or fewer.Retailers, in turn, say they are passing higher costs from trucking and other transport on to their customers to preserve profit margins.“There’s higher transportation costs across the whole supply chain whether it’s ocean freight or trucking or the price of fuel,” Bob Nelson, a senior vice-president at Costco, one of America’s largest retailers, told Wall Street analysts last month. “Eventually, those costs make their way into your sale price.”Target said it would have to pay an extra $1bn on freight and transportation costs this year than it had expected at the start of the year, citing it as one of the main drivers of slumping profitability.High diesel costs are also being felt on farms across the country, pushing up the price of food at supermarkets and restaurants.“All of our equipment runs on diesel . . . Fuel costs are just killing us,” said Don Cameron, general manager at Terranova Ranch, a farming operation in California, where diesel prices are nearing $7 a gallon, far higher than the national average. Cameron also serves as president of the state’s Board of Food and Agriculture.

High diesel costs are being felt on farms across the country, pushing up the price of food © David Ryder/Bloomberg

Cameron’s farm, which employs 65 people full-time and far more during harvest season, grows crops such as fresh produce and almonds that go to large restaurant chains and food processors. He said he had to negotiate price increases of 25 per cent for some of his crops this year, and another 25 per cent increase next year was not “out of the question”. There is little sign of relief in the coming months with diesel prices continuing to surge, complicating the Federal Reserve’s efforts to tamp down inflation and posing political problems for President Joe Biden, who has seen his approval rating dragged down by persistently high inflation. Crude oil prices, the main driver of the cost of diesel, continue to rise because of tight supplies. The world’s oil refiners, after a wave of shutdowns as the pandemic inflicted heavy financial losses on the sector, are struggling to keep up with stronger than expected post-pandemic fuel demand.

US oil producers themselves rely on diesel to fuel trucks that ferry workers, equipment and materials such as water and fracking sand to remote oilfields, and to operate powerful drilling and fracking machinery. A single well can require tens of thousands of gallons of diesel before it starts producing oil. The cost for producers, however, is at least partly offset by higher prices for crude. Goldman Sachs says that it expects Brent crude prices to average $135 a barrel through the rest of the year, higher than the current price of about $122 a barrel.Rob Sladek, owner of JCS Family Farms in Iowa, said his added fuel expense was piling economic pain on top of the already rocketing costs of fertiliser and other agricultural inputs.“It’s like asking, ‘Which tooth on the chainsaw killed you?’ It’s just one of the many,” he said. More

Stalling economic growth has not yet taken the heat out of the UK labour market, according to official data on Tuesday that showed the number of full-time employees at an all-time high, while the number of vacancies rose to a record 1.3mn.However, the data contained some early signs that the jobs market could be on the turn, with hiring slowing and unemployment edging up.Economists said that while the figures supported the case for the Bank of England to raise interest rates again at its meeting on Thursday, they could lessen the argument for a big increase or for continued aggressive policy tightening. The figures, released by the Office for National Statistics, showed the employment rate rose to 75.6 per cent in the three months to April, up 0.2 percentage points on the quarter and a bigger rise than economists had anticipated. This was driven by full-time employment, with part-time work and self-employment still below pre-pandemic levels. Sandra Horsfield, economist at Investec, said “solid labour demand . . . in the context of red-hot consumer price inflation” would confirm the case for further monetary policy tightening, while Hugh Gimber, strategist at JPMorgan Asset Management, said the data showed the “conundrum” facing the BoE, as “central banks are being forced to tighten at a time when there are already clear signs that growth is slowing”.However, the data showed that the breakneck pace of hiring in recent months has slowed. Vacancies, although at a record, were only slightly higher than the previous month. Unemployment rose in April, taking the jobless rate over the three months to 3.8 per cent — slightly above the 50-year low recorded a month earlier. “The labour market could now be at a turning point,” said Greg Thwaites, research director at the Resolution Foundation think-tank, while James Smith, economist at investment bank ING, said: “We can tentatively say that worker shortages are no longer actively getting worse.” This is partly because at least some of the people who have left the workforce since the start of the pandemic are now beginning to return. The ONS said economic inactivity fell by 0.1 percentage points in the three months to April, as young people who had stayed in full-time education rather than start their careers mid-pandemic came back. Kitty Ussher, chief economist at the Institute of Directors, said this was “encouraging for businesses that were struggling to fill vacancies”, as it should make future job openings easier to fill and reduce inflationary pressure. She added that there were also “early signs that the labour market is beginning to settle”, with the rate of hiring slowing and a small rise in short-term unemployment.Chancellor Rishi Sunak said the figures showed the jobs market remained robust, adding that helping people into better jobs was the best way to support them in the long term, although the government was also providing “immediate help with rising prices”.However, inflation is now starting to hit pay packets hard. Although pay growth is still strong by historical standards, average weekly earnings were 3.4 per cent lower in real terms than a year earlier in April, the month when the cap on household energy bills changed. Even after including bonuses, the single month data for April showed total pay had fallen sharply in real terms, though it had broadly kept pace with inflation over the three-month period.

The data will reinforce the case for the Monetary Policy Committee to raise interest rates again when it meets this week. The BoE made it clear in its May forecasts it believed nominal wage growth was running at an unsustainable pace and unemployment would need to rise if inflation was to return to its 2 per cent target in the medium term.Paul Dales, at the consultancy Capital Economics, said nominal wage growth remained unusually strong, but evidence of a “slightly looser labour market” might tilt the MPC towards raising interest rates by 25 basis points rather than 50 basis points. However, Samuel Tombs, at the consultancy Pantheon Macroeconomics, said it was encouraging that wage growth had steadied and workforce numbers had begun to recover. “The labour market remains very tight, but it is not supporting domestically-generated inflation enough to provoke the MPC into a series of rapid rate hikes that would push the economy into a recession,” he said. More

The US Department of Defense has signed a $120mn deal with Australia’s Lynas Rare Earths to build one of the first US domestic heavy rare earths separation facilities, part of Washington’s push to counter China’s dominance of critical mineral supply chains.Rare earth elements are vital to making magnets used in military equipment such as lasers and guidance systems, as well as components in electric vehicles, wind turbines, fibre optic cables and consumer electronics. China is responsible for almost 90 per cent of global refining of rare earths and more than 50 per cent of rare earths mining, according to the International Energy Agency. The US has no operating commercial-scale processing facilities, raising concerns in Washington that the country could be cut off from these critical minerals in the future if relations with China deteriorate further. Under the deal with Lynas, China would be bypassed entirely from the production cycle. The US defence department is also separately funding a heavy rare earth processing project at a mine in California.The Australian Securities Exchange-listed company will export heavy rare earth carbonate mined and refined in Australia to the US, where the individual elements will be separated for commercial use. Lynas, based in Perth, is the world’s largest rare earths producer outside China, according to Barrenjoey, an investment bank.The deal, which expands a pilot scheme first announced in 2020, is part of Washington’s drive to build supply chains and local manufacturing industries in semiconductors, batteries, critical minerals and pharmaceuticals.Lynas said the $120mn investment would cover the full cost of plant construction, meaning the company would not have to put up any capital itself. The plant is likely to be built in Texas and be operational by 2025. The company also announced plans to build a light rare earths processing facility in the same location last year.“The really important thing here is there is no heavy rare earths separation outside China at present,” Lynas managing director Amanda Lacaze told the Financial Times.“Putting aside any geopolitical issues, what we’ve seen from the pandemic is that any singular supply chain has risk associated with it. So this is a terrific opportunity to address that risk,” she said. Lacaze said she hoped the US government would also work to develop an onshore magnet manufacturing industry. “We like to have our facilities close to our customers and our customers close to our facilities,” she said.Lynas processes most of its rare earths at a large plant in Kuantan, Malaysia, and is building another plant in Western Australia. However, the Malaysian plant only separates light rare earths, sending the less common heavy rare earths elements to China for processing. Daniel Morgan, a mining analyst with Barrenjoey, said China’s dominance of this sector was a “strategic vulnerability” for the US.

“As of right now, there are not a lot of options for the US military to get heavy rare earths needed in lasers and guidance systems. Without these heavy rare earths, the US military can’t have these things. It’s a strategic vulnerability,” he said. Australia has some of the largest deposits in the world of critical minerals needed in electronic devices and the energy transition, including nickel, lithium, cobalt and rare earths.The Australian government under previous prime minister Scott Morrison developed a critical minerals strategy that attempted to reach deals with non-Chinese trading partners including the US, UK, EU, Japan, India and South Korea while also giving government funding to local mines and processing plants.In March, representatives from Lynas and a number of other rare earths and cobalt miners travelled to Washington, DC, as part of a delegation with Australia’s trade minister to discuss building stronger trading relationships in these critical minerals.

Video: Why China’s control of rare earths matters More

German brewers have long been wary of increasing prices. When King Ludwig 1 raised the ale tax by 8 per cent in 1844, riots broke out between labourers and the army in Munich that lasted for three days. But Johannes Faust and his 1,500 counterparts scattered across the country may soon have little choice. Faust has brewed beer on the banks of the Main river in northern Bavaria, nestled between the half-timbered houses in the historic centre of the small town of Miltenberg, for 30 years. The chief executive has never seen his costs surge on the scale they are today. The malt Faust’s family-owned brewery has bought from local German producers since it started making beer in 1654 will soon double in price. Russia’s invasion of Ukraine has hit supplies of the grain from the two countries, which together produce more than a third of the global barley market. The brewery is also having to pay at least a third more for its glass bottles, along with over 50 per cent higher prices for plastic cases, and three-quarters more for its metal bottle caps. Energy, transport and staff costs are also going up. “I’ve never seen inflation like this,” said Faust. This brewery, like many in the country, had been able to shield customers from higher costs owing to long-term supply contracts. The doubling of the malt price that he recently agreed is for next year’s supply, while its two-year energy contract means its electricity prices will not go up until 2024. But, unless costs tumble fast in the coming months, higher prices for the country’s beer drinkers look set to follow. Holger Eichele, head of the German brewers’ association, said: “For many companies this is becoming an existential threat.” Across the eurozone, manufacturers are under pressure from rising costs — producer prices rose at an all-time high of 37.2 per cent in the year to April. But the sudden surge in costs is just the latest shock to hit Germany’s breweries. Only a few countries drank more ale than the 83.8 litres each German consumed on average last year. Yet, as more health-conscious consumers choose other drinks, the figure has fallen steadily since the 1970s, when they drank 150 litres per person. If inflation means Germans have to pay much more for their steins of beer, it could squeeze demand for the national tipple even more. Surging costs have been the last straw for some, such as the 558-year-old Frankenwälder brewery in north-east Bavaria, which filed for insolvency this year after many local beer festivals shut for two years during the pandemic. “I fear some breweries in our size range will have problems with higher costs because they don’t have market power,” said Faust.For now, the average German beer drinker will have barely noticed the increase in prices, which rose 3.5 per cent in the year to May, according to Germany’s statistical agency. That is well below broader consumer price inflation of 8.7 per cent in the year to May. This moderation, like a pledge of sobriety at Munich’s Oktoberfest, looks set to be overtaken by circumstance. This month, Faust raised its price by 10 cents per litre of beer, equal to a higher than usual 6.5 per cent increase, taking the price for a 20-bottle crate of its best-selling Pils to €16.49. “But that was decided last October, long before Ukraine, and it does not even come close to offsetting our higher costs,” said Faust.Johannes Faust, chief executive of Faust breweries: ‘I’ve never seen inflation like this’ © Ben Kilb/FTRhineland-Palatinate’s Bitburger said its own “moderate” price increase, decided last year, would also do little to cover its “exploding energy and raw material prices”.The Berlin Brandenburg brewery association, a regional trade group, said prices for beer drinkers could rise up to 30 per cent this year. Radeberger, the biggest German brewer based in Frankfurt, said it also worried about “the increasing scarcity of raw materials and the resulting further price increases”.Economists agree that the capacity for factories to handle high input costs without raising prices for consumers would not last. “Just the delays built in to pricing policy mean there is still a lot of inflationary pressure in the pipeline for the next few months,” said Carsten Brzeski, the Frankfurt-based head of macro research at ING. Oliver Rakau, chief German economist at Oxford Economics, said what started as mostly an oil and gas price shock was broadening to drive inflation in many other products and services. “There’s no denying that higher energy and commodity prices will feed through into other products, like food and drink prices, and that could lead to higher restaurant prices, which pushes up services inflation,” he said.Improving market conditions may also help German brewers to pass on more of their high costs to consumers, who at the moment pay much lower prices than their counterparts in places like the UK.

The Faust brewery is having to pay more for glass bottles, plastic cases and metal bottle caps. Energy, transport and staff costs are also going up © Ben Kilb/FT

Beer sales have rebounded in Germany recently — rising 5.1 per cent in the first four months of this year compared with a year ago, according to Germany’s statistical agency — and the reopening of many beer festivals including Oktoberfest after two years of Covid closures, is likely to boost demand. Beer prices at this year’s Oktoberfest will be on average 15 per cent higher than the last one three years ago, at €13.37 per foaming litre.Still, those who know their history are keen to avoid alienating the country’s drinkers. Asked whether he will raise prices even higher for his customers next year, Faust gave an anguished look. “We have to be very careful,” he said. “We have to think about it, but maybe we can avoid it if things change in Ukraine.” More

This is part of a series, ‘Economists Exchange’, featuring conversations between top FT commentators and leading economistsIn the UK, unemployment is at its lowest for almost half a century, but large numbers of people have chosen to drop out of the workforce. In the eurozone, the jobless rate is the lowest since the creation of the single currency. In the US, acute labour shortages have created a jobseekers’ market — although wages are still lagging behind inflation.The problems in labour markets look very different from when Christopher Pissarides, regius professor of economics at the LSE and a former adviser to the Cypriot and Greek governments, began his academic career in the 1970s — a time when governments were struggling to get to grips with a new era of mass unemployment. But for Pissarides — who won a Nobel Prize in 2010 for his work on friction in labour markets — many of the answers are similar. Then, he argued that unemployment could not be solved by macroeconomic stimulus, because it was partly due to mismatches between the jobs and the skills of the workers available. Now, he contends that policymakers need to rid themselves of the urge to tackle social problems through monetary and fiscal stimulus that will fuel inflation but not bring any fundamental shift in workers’ bargaining power.Discussing the new review he is leading, of automation and the future of work in the UK, he argues that the remedies for regional inequality will instead lie in upskilling people for new roles, and using the flexibilities afforded by remote working to help older workers remain in the workforce or re-enter it.Delphine Strauss: Chris, what differences do you see between this recovery and the last one, after 2008? It seems as if in the aftermath of the financial crisis we had a different problem, with very persistent unemployment in the eurozone, and then a big rise in low quality work and insecurity in the US and the UK. How do you think the Covid crisis has changed the nature of the challenge?Christopher Pissarides: It’s a completely different kind of recovery we’re facing now. Not only because of Covid, but also because it has coincided with the war in Ukraine and what’s happening to prices of materials. In 2008, the recession was focused on the financial sector, and the main spillover from there was in construction or housing . . . Once you brought [those two sectors] under control . . . then recovery was going to come on its own, as it did.I do think there were mistakes made, like the debt-reduction policies of George Osborne [then UK chancellor]. Of course, I believe it was a big mistake. It’s the first thing where I appeared in the press with headlines — saying Britain’s new Nobel laureate says it’s a mistake, the sovereign risk is not going to be so high as to warrant this kind of policy. That’s what slowed down the recovery, rather than the economy itself. Very importantly, there was no inflation at the time. So, we could use these expansionary monetary policies as we wanted, to get us out of the recession and there were no inflationary risks.Now, we’re running into the problem that there is a lot more debt. So, some debt reduction might be justified before it gets out of control — although, until recently, I thought that it wasn’t justified yet. Coinciding with the rise in energy prices and those spreading out into the economy, and with the huge expansion of furlough schemes and other things during the pandemic internationally, that created a situation where we might be running risks that would get out of control. The debt situation — debt and inflation combined — could see us lose control in macro management and not be able to bring the economy under control quickly enough.On top of that, technological changes are taking place. They were happening independently in the economy because of automation, robotics and so on, but Covid brought new technological changes. Couple that with China being the main trading partner of the UK, outside Europe, and going into lockdown seemingly forever, and what’s happening with energy supplies and in other supply chains. There are so many things taking place simultaneously that it’s really a very, very difficult job, knowing how to co-ordinate policy and how to control the economy so as to bring a recovery that is quick enough and without big costs, especially for those on lower incomes and for the inequality we’ve been observing across Britain.DS: Do you think it’s still possible for policymakers to seek to tackle social problems by running the economy hot? Or is the idea of running a high-pressure economy not realistic any more?

CP: The problem with running the economy hot to deal with such problems is that it might bring even more inflation. That will affect the very people you are trying to help. The only solution I see is something similar to the furlough policy, but addressed to people in work on low incomes — because you have this double whammy of [inflation] and new technologies, which are hitting mainly low incomes and unskilled jobs. That’s the section of the economy that needs a little help, but it doesn’t need fiscal policy — general macro fiscal policy type of help — because inflation is a real constraint. DS: Is automation still the biggest threat for low-income workers or are we coming into a situation where labour shortages mean it’s a benign phenomenon?CP: I think we’re reaching a point where companies will automate because of the shortages of labour. I know agriculture is a small sector, but a lot of the seasonal agricultural labour in the UK was immigrant labour, which is a lot more difficult now . . . No one would blame a company that relies on that type of work for automating.I don’t think it’s a risk if other measures are put in place at the same time — upskilling and the transition to new types of jobs where there are labour shortages. The skills required in the new jobs are different from the ones that automation technologies have taken over. They may be a bit more technical. They will rely more on social interaction, as in the hospitality industry and in health and care . . . But they require training. There are also jobs where there are a lot of traditionally gendered differences that it might take time to get rid of.Those things are problems that need to be tackled, but if they are tackled correctly, automation will be a welcome aspect of how we run the labour market. Productivity will go up and there is no reason why we should have the inequalities that we have, because the new jobs will be more highly skilled.You might ask, how can we provide that kind of help? I think that’s where government comes in. If it’s going to find money to support the labour market, that’s where it should be directed — to upskilling, providing information about the transition into new types of jobs and giving subsidies to companies that train.DS: In the US and UK, we have very low unemployment alongside very high vacancies and lower participation. What should governments be doing to boost employment?

CP: Through training programmes and the other issues about how you identify with new types of jobs . . . a publicity campaign that these jobs pay well and so on. Then there will be more participation. Especially from women and older workers, because although participation of over-65s is increasing, it’s still way down if you compare it with healthy life expectancies. That would rise if there were more flexible types of arrangements at work. Then, that could be combined with more automation at the lower, unskilled end of the market.DS: If labour shortages are going to be endemic for a while, do you think we will get a real shift in workers’ bargaining power and ability to get the terms they want?CP: Well, on the one hand, you might think we will because there is unusually high demand for labour, given the conditions. But on the other hand, workers do feel a lot more threatened by new technologies and all these unanticipated shocks — Covid, war in Europe. So, I don’t see them, or their unions, being aggressive in pushing for wage rises without worrying about jobs. That mentality, I think, is past.I do see market forces pushing in that direction, because employers who think they have good business and cannot find workers might be raising wages. But again, that would depend very much on whether the training programmes are in place and whether the transitions workers would be making are feasible.DS: Do you see any reason to think that the longer-term trend of slower productivity growth will change, post-Covid — and what would that mean for monetary policy?CP: It’s certainly not in the statistics as yet, but you would think that if we played the automation possibilities and new technologies well, there would be some [pick-up], at least in manufacturing and sectors such as finance. But somehow, you don’t see it happening in Britain as much as in Germany, for example, or in France or some of the smaller countries like Sweden, or outside Europe, Japan.Internationally . . . we have to be realistic about monetary policy. We had near zero interest rates for so long that we think that’s the norm but it’s not. Capital has a rate of return — that’s what induces investment. That rate of return should be reflected in the central bank’s interest rate policy. In a sense, it was unusual circumstances that put interest rates so low.Here [in the UK], with 1 per cent interest rate from the central bank, we panicked as if to say, “Oh my god, stagflation is coming. We’ve had it. What are we going to do?” But 1 per cent is still below what you might consider to be a long-run equilibrium. DS: So is the new, post-Covid normality going to look more like the old normality?CP: I think so, yes. With more capital and better quality capital, more automation and, I hope, more flexibility in labour markets in terms of jobs, working hours, working from home. New forms of training programmes, rethinking the education system to provide better digital-type education. Facilities to make it easier for older people to participate, which would involve . . . flexibility on hours of work, because we do know that older people are bigger users of health services, for example. If you work from nine to five every day, that becomes difficult but if there’s more flexibility on how you adjust your hours, even if they are close to 35 a week or whatever full-time is, then, more of them will come out into the market.

DS: You’ve said recently that people’s experience of work is very much defined by place. Would that remain true if we do have a higher degree of remote working and movement away from urban centres?CP: That is one of the central themes of the project that the Nuffield Foundation is funding us to research at the Institute for the Future of Work. I’m in two minds about it. There is no doubt that if you are in an area of the country where there are many different types of jobs, you will have a higher rate of return to your experience than if you are elsewhere.I’ve been involved in various studies that show the biggest gains from experience are in places where there are the benefits of being close to other economic actors and spillovers from one job to another. It gives you the possibility of changing jobs, or if your employer doesn’t want to lose you when there’s an alternative, they are more likely to provide good training and make your experience more rewarding.DS: What kinds of places would those be?CP: London is number one here. In France, it’s Paris. The US has more, because of its size — New York, Los Angeles, San Francisco, even Texas, Houston and, of course, Boston — the Massachusetts area. But in Britain, there is hardly anything outside the London area and the surrounding sphere of influence. France is exactly the same — Paris and the surrounding area is completely dominant.Now, the really difficult question is, given the new technologies we have and if we do go for more flexibility in work, whether these benefits could also be achieved elsewhere. I would hope so. We know from economic geography that you need concentration — even in the US. But do you really need only one big urban centre? The answer is obviously no. In the UK, Manchester, Liverpool, Birmingham, Coventry, Wolverhampton, Newcastle, Sunderland could be urban centres that benefit those living in the surrounding area and where people work remotely with the other big centres.That’s what we are working on. I hope it can be achieved. In principle, there is no reason why we shouldn’t have, say, three or four urban centres instead of one. That will enable people to stay there rather than be forced to migrate to enjoy more successful careers.DS: What are you hoping to find out from the review?CP: Why there are such big gaps in productivity and generally in the types of jobs that are being created in different areas of the country. Our preliminary findings and thinking is that that’s partly due to the different skills and types of labour available across Britain. That’s only to some extent due to migration.

There are also areas where you don’t have the mentality that education is good and let’s get more education. One of the findings of intergenerational research is that what your parents did is a very strong influence. In areas where parents used to leave school at 16 and go into manufacturing, coal mining, shipbuilding and so on, that’s transmitted to the next generation.So, that’s a big constraint. Then, there is the migration of university graduates, sizeable fractions leaving some areas. Obviously, London and the south-east is the biggest attraction for them.Then, the other aspect, which we haven’t fully investigated yet, is why are employers not adopting the latest technology in some places? Why are there so many more unicorns in the south-east than in the Manchester area, for example? We’re trying to find out by collecting our own data.DS: Beyond the UK, one of the really striking things about the labour market recovery has been just how good things look in the eurozone, where unemployment is the lowest it’s been since the euro was created. What’s your view on that and what should be done to make the most of it?CP: The eurozone is more flexible on the labour market because it still has a big supply of more reasonably priced labour [from eastern Europe] and there are still big numbers underemployed in their own countries or in certain jobs. Female employment rates in southern Europe are still very low and with the rise in education standards, they will increase. Altogether, the fundamentals, if you like, of the labour market in the eurozone are a lot better than almost anywhere else in the advanced world.The problems the eurozone had in the past had to do more with monetary union and whether one rate of exchange was good for all the countries. But the adjustment seems to have taken place. I chaired a committee that prepared a report for the Greek government, which looked at these things in great detail and the exchange rates and financial matters were not really constraints. The constraints were more like the integration of the public sector in the regulation and openness of the professions — the old, traditional market rigidity of southern Europe.Gradually, those have been reformed. Spain was a leader in that reform, Italy under Mario Draghi is doing it, Greece is doing it now. When you see all those things taking place with the European Central Bank having put the financial side under control, then there are better prospects for the eurozone.The above transcript has been edited for brevity and clarity More

Taiwan’s consumer price index was 3.39% higher in May than a year earlier. That inflation rate was the highest since August 2012 and exceeded the central bank’s 2% target for the 10th consecutive month.Inflation is still slower than in the United States and Europe, however.”It’s not only to be resolved by raising interest rates; we often have discussions across ministries” for other solutions, Wang told local radio.The government already has put policies in place to help, like cutting some tariffs on imports of raw materials and freezing domestic fuel prices, Wang said.”Compared to international control of inflation, Asian countries have taken more measures than Europe and the United States,” she said. “The Taiwan government has taken even more.”Taiwan’s central bank holds its quarterly rate-setting meeting on Thursday.All 19 economists in a Reuters poll expect the bank to raise the rate, with 10 predicting a rise to 1.5% and the other 9 seeing it going to 1.625%.It is currently at 1.375%. More

WASHINGTON (Reuters) – Eroding inflation data and fast-changing views in financial markets on Monday have opened the door to a larger-than-expected three-quarter-percentage point interest rate increase when Federal Reserve officials meet this week.It is a move officials had downplayed as their two-day meeting approached over recent weeks, but which they now may be poised to adopt in response to data that has yet to show progress on taming the pace of price increases. The growing possibility of a surprise move was reported earlier on Monday by the Wall Street Journal, helping to further push trade in future contracts tied to Fed policy in that direction.Fed officials have not commented publicly since the start of their pre-meeting “blackout” period on June 4, and prior to that had said they were leaning toward a second straight half-point rate increase at their June 14-15 policy meeting.But that outlook was conditioned on, as Fed Chair Jerome Powell said at his May press conference, “economic and financial conditions evolving broadly in line with expectations. … Expectations are that we’ll start to see inflation, you know, flattening out.”It hasn’t.Instead, Labor Department data released on Friday for May showed consumer price inflation accelerating to 8.6%. An alternate “trimmed mean” measure from the Cleveland Federal Reserve Bank that the Fed watches also accelerated, a sign that price pressures are broad and not limited to outlying groups of goods or services with particularly large price hikes.Meanwhile, on Friday and Monday an array of measures of inflation expectations moved in the wrong direction for a Fed that has said it is particularly sensitive to loosing a grip on public psychology around price pressures.Markets throughout Monday quickly repriced, with traders in contracts tied to the federal funds rate by late Monday betting with near certainty on a three-quarter-point increase, which would be the first hike that large since November 1994.A decision will not be made until the close of the meeting on Wednesday after what is likely to be a full debate about the risks that faster rate hikes might tip the economy into a recession, and the risks they might pose to the Fed’s own credibility after leaning hard on half-point increases as adequate for now.The Fed has at times in the past both driven market repricing to suit its needs and used market moves as an opening to align its own policy.In this case, data shifting the inflation outlook came in at a time when Fed officials were proscribed by internal rules from speaking out publicly on how it affected their outlook. Several media reports, following the initial report in the Wall Street Journal https://www.wsj.com/articles/bad-inflation-reports-raise-odds-of-surprise-0-75-percentage-point-rate-rise-this-week-11655147927?mod=hp_lead_pos1, also signaled the possibility of a larger hike, however, and markets began moving as a result, with several high-profile Fed analysts, including those at institutions like JP Morgan and Goldman Sachs (NYSE:GS) joining in.”Until and unless we see some kind of unofficial clarification, we are forced to take the reports at what we think is face value,” said ISI Evercore Vice Chair Krishna Guha, who had been sticking with projections of a half-point hike. “It looks like we were wrong and 75 is after all likely this week.” More

“The government plans to adopt measures from the supply side because the source of price growth comes from the supply side,” Yoon told reporters after arriving at his office.South Korea’s consumer inflation for the year to May hit a near 14-year high of 5.4% and is widely seen heading higher, mainly lifted by a global surge in materials and food costs. More