Economy

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$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

The consumer price index showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month.
Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly. All of the figures were in line with forecasts.
The report further solidified the market outlook for a cut, with traders raising the odds to 99%, according to the CME Group’s FedWatch measure.

Consumer prices rose at a faster annual pace in November, a reminder that inflation remains an issue both for households and policymakers.
The consumer price index showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month, the Bureau of Labor Statistics reported Wednesday. The annual rate was 0.1 percentage point higher than October.

Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly. The 12-month core reading was unchanged from a month ago.

All of the numbers were in line with the Dow Jones consensus estimates.
The readings come with Federal Reserve officials mulling over what to do at their policy meeting next week. Markets strongly expect the Fed to lower its benchmark short-term borrowing rate by a quarter percentage point when the meeting wraps up Dec. 18, but then skip January as they measure the impact successive cuts have had on the economy.
The report further solidified the market outlook for a cut, with traders raising the odds to 99%, according to the CME Group’s FedWatch measure. Odds of a January reduction also edged higher, hitting about 23%.
“In-line core inflation clears the way for a rate cut at next week’s [Federal Open Market Committee] meeting,” said Whitney Watson, global co-head and co-CIO for fixed income at Goldman Sachs Asset Management. “Following today’s data the Fed will depart for the holiday break still confident in the disinflation process and we think it remains on course for further gradual easing in the new year.”

While inflation is well off the 40-year high it saw in mid-2022, it remains above the Fed’s 2% annual target. Some policymakers in recent days have expressed frustration with inflation’s resilience and have indicated that the pace of rate cuts may need to slow if more progress isn’t made.
If the Fed follows through with a reduction next week, it will have taken a full percentage point off the federal funds rate since September.
Much of the November increase in the CPI came from shelter costs, which rose 0.3% and have been one of the most stubborn components of inflation. Fed officials and many economists expect housing-related inflation to ease as new rental leases are negotiated, but the item has continued to increase each month.
A measure within the shelter component that asks homeowners what they could get in rent for their properties increased 0.2%, as did the actual rent index. They are the smallest monthly respective increases since April and July 2021.
The BLS estimated that the shelter item, which has about a one-third weighting in the CPI calculation, accounted for about 40% of the total increase in November. The shelter index rose 4.7% on a 12-month basis in November.
Used vehicle prices rose 2% monthly while new vehicle prices increased 0.6%, reversing the recent trend that has seen those items come down.
Elsewhere, food costs rose 0.4% monthly and 2.4% year over year, while the energy index increased 0.2% but was down 3.2% annually. Within food, the measure of cereals and bakery products fell 1.1% in November, the single biggest monthly decline in the measure’s history going back to 1989, according to the BLS.
The increase in the CPI meant that average hourly earnings for workers were basically flat for the month when adjusted for inflation, but increased 1.3% from a year ago, the BLS said in a separate release.

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LONDON (Reuters) – Global growth will slow in 2025, and offshore investors are set to cut the cash they send to emerging markets by nearly a quarter, as promised policies from incoming U.S. President Donald Trump reverberate through global markets, a banking trade group said on Wednesday.     The threatened tariffs, a stronger U.S. dollar and slower-than-expected interest rate cuts from the U.S. Federal Reserve are already impacting investor plans, the Institute of International Finance (IIF) said.   “The environment for capital flows has become more challenging, tempering investor appetite for risk assets,” the IIF said in its semi-annual report.     The shift is hitting China the hardest, and emerging markets outside China are expected to pull in “robust” inflows in bonds and equities – led by resource-rich economies in the Middle East and Africa. Already in 2024, China marked its first outflow of foreign direct investment in decades, and total portfolio flows to the world’s second-largest economy are expected to turn negative, an outflow of $25 billion, in 2025. “This divergence highlights the continued resilience of non-China EMs, supported by improving risk sentiment, structural shifts like supply chain diversification, and strong demand for local currency debt,” the IIF said. The IIF projected that global growth will moderate to 2.7% in 2025, from 2.9% this year, while emerging markets are set to grow 3.8%. It expects capital flows to emerging markets, though, to fall to $716 billion, down from $944 billion this year, driven primarily by weaker flows to China.    The IIF warned that its base case assumed only selective tariff implementation. If Trump’s threatened 60% tariffs on China – and 10% for the rest of the world – come into force, the scenario would worsen. “A stronger and swifter implementation of tariffs by the United States could exacerbate downside risks, amplifying disruptions to global trade and supply chains, placing additional strain on EM capital flows,” it said.  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Karthik Sankaran is a senior research fellow in geoeconomics in the Global South program at the Quincy Institute for Responsible Statecraft.There’s been a lot of ink spilled recently over Trump’s threat of 100 per cent tariffs on any country that would “leave the dollar.” Understandably so!While Trump didn’t spell out why, dollar centrality in the international monetary and financial system (IMFS to hipsters) gives the US unmatched powers to surveil cross-border financial flows and curtail them, as acknowledged by Treasury Secretary designate Scott Bessent here:[embedded content]This seems to override the preferences of VP-elect-Vance, who believes the dollar’s centrality has led to unwarranted currency strength and American deindustrialisation. Trump himself also seems to believe this, telling Bloomberg earlier this year that the US has “a big currency problem”.All this suggests a conflict between two views — one might call them the National Security Dollar and the Trade Dollar. But there’s a third critical global role in play — the Financial Stability Dollar. And here, the tussles between the Trade Dollar and the National Security Dollar could have a big impact on the rest of the world. The role of the dollar as the leading denomination for cross-border borrowing and invoicing means that when it is too strong (ie, the Trade Dollar faction loses), it tightens financial conditions in large parts of the world. There are multiple transmission avenues. It hits emerging markets that borrow mostly in dollars by making repayment more expensive, and subjects others with dollar-sensitive investors in their local currency debt markets to capital outflows. A combination of dollar strength and slower global growth can be especially toxic for commodity exporters who borrow in dollars — and there are a lot of them. Interactions across these three roles could become increasingly problematic. So far, markets have reacted to tariff threats by lifting the dollar. And while such strength might dampen the price signals that favour import substitution, it would also offer a partial offset to the inflationary impact of tariffs (something Bessent welcomed in the interview above).  This trade-off makes sense if the fundamental conception of tariffs is based less on industrial strategy and more on the idea that the withdrawal of market access to the US can be used as a cudgel, including for geopolitical purposes. And this seems like an administration that likes its geoeconomic cudgels.Online, there’s a widespread belief that tariffs that lead to a weaker renminbi would exacerbate capital flight from China, alongside the occasional hope that this process would hit the Communist regime’s legitimacy. But to push the country into a deeper economic malaise (more than its own policies already have) would cause a lot of collateral damage China is still the world’s second-largest economy. Any strategy to weaken it would have consequences for countries that compete with its exports and/or are sensitive to Chinese growth and imports. This would include many US allies, with two of the four members of the Quad —Japan and Australia — checking these boxes. Anything that hits China would hit other emerging markets even harder. They would see their currencies weaken in tandem with the renminbi, but without the degrees of freedom that come from what China has — at least $3tn in official reserve assets and more in other quasi-governmental institutions; a debt stock that is largely in local currency held by onshore investors; an immense manufacturing export sector; and local bond yields at just 2 per cent. Life would be a lot harder for countries without those buffers.The above would actually be a relatively restrained geoeconomic outcome compared to some more crypto-friendly ideas floating around the blog/podosphere. One such idea is that the cross-border availability of dollar-based stablecoins could extend the footprint (or dominance) of the dollar by permitting currency substitution (or capital flight) outside the US. This is sometimes presented as an expansion of rule of law/liberty in places that need one or both, and as a private sector version of reserve accumulation that will support demand for US government debt — the natural asset counterpart to the dollar-stablecoin issuer’s liability. This might well be the case, but while easy currency substitution might be a good thing for individuals in some countries, it can be a very bad thing for the stability of those countries’ banking systems.Moreover, stablecoins expand not just the footprint of the US, but also the footprint of its financial cycle, and that is determined to a substantial degree by the Fed’s response to key macroeconomic aggregates within a relatively closed economy. For more than a decade now, many developing countries have grappled with the problem of having their financial cycles determined in Washington even as critical components of their real cycle — commodity demand and prices, for example — are determined in Beijing. A unipolar force driving the global financial cycle alongside multipolar forces driving local real cycles is a bad idea for financial stability, but that seems to be a significant risk here. There’s an argument for a multipolar global monetary system that avoids exactly such a divergence between real and financial cycles across hubs and spokes. But the only place that has come close is the Eurozone, where a common currency is not just a denomination for trade, but also for capital markets transactions backstopped by a central bank that has after 2012 begun to take its lender-of-last Resort function seriously. No one else is close to this — certainly not the BRICS — and that’s a bad thing for global financial stability. What would be even worse is if the proponents of the National Security Dollar actually prevent a multipolar monetary order (presumably with another minor hub in the renminbi at some point in the future) from ever happening. More

BRUSSELS (Reuters) – Poland will make joint European Union financing for defence its priority during its six-month presidency of the 27-nation bloc, arguing that security is a common European good, Poland’s Finance Minister Andrzej Domanski said on Wednesday.The European Commission has estimated the cost of boosting the EU’s defence capabilities at 500 billion euros ($525 billion) or more over the next 10 years. EU finance ministers will discuss possible financing models in April in Warsaw, Domanski said.”I believe that security is a common good, therefore we need a common solution. There must be a European solution,” Domanski said before Poland takes charge in January. Without saying how much money was needed, he noted that large projects, like a European air defence system, were not only about money but also about cooperation between nations.He also stressed the need for more efficiency, pointing to Europe’s 12 different tank systems as “insane”. Any joint financing model would most likely entail new joint EU borrowing, a highly controversial idea in Europe’s largest economy Germany which faces legal obstacles to joint debt. Diplomats say legal issues can only be bypassed if new borrowing were a one-off response to an emergency, like after COVID-19. POSSIBLE OPTIONSDiplomats said talks were along two main strands: one that would involve the EU’s long-term budget as security for new borrowing, following the model for the EU’s post-COVID 800 billion euro recovery fund.The other option is a special purpose vehicle with paid-in capital that would borrow against that capital, modelled on the euro zone bailout fund, the European Stability Mechanism (ESM), which can lend up to 500 billion euros.The option involving the EU budget would present more difficulties, because it would require unanimity of all 27 EU countries, limit participants to EU members and put the European Commission in charge – a prospect some countries do not relish in the context of defence policy.Creating an SPV would let the EU invite other nations like Britain and Norway, keep the scheme under control of governments rather than the Commission, and keep the debt raised off the balance sheet of governments.”From my talks with other ministers of finance, there is a broad support for the view that we need to do way more as Europe,” Domanski said. “There are a couple of solutions on the table. I think it’s way premature to decide which of them would be chosen.” The size of the EU’s financing needs will be better understood after the publication of a report by new EU Defence Commissioner Andrius Kubilius, due by early March, spelling out what defence efforts should focus on.For now, discussions on financing options are at an early stage. “We may be starting to tie our shoes before going to the starting blocks,” one EU diplomat said.($1 = 0.9519 euros) More

The Chinese-owned social media app requested the court set aside a government order requiring TikTok to wind-up its business in Canada, a filing dated Dec. 5 showed. Alternatively, it said the court could set aside the order and return it to the government for review along with guidance.A spokesperson for Canada’s Minister of Innovation, Science and Industry said in a statement that the government stood by its decision requiring TikTok to wind up its business in Canada. “The Government’s decision was informed by a thorough national security review and advice from Canada’s security and intelligence community”, the spokesperson said on Wednesday. Ottawa began investigating TikTok’s plan to invest and expand its business in Canada last year. The review led to a government order last month that required the firm to end its Canadian operations because of national security concerns.Closing its Canadian business would lead to hundreds of job losses, TikTok argued in its statement on the legal challenge. “We believe it’s in the best interest of Canadians to find a meaningful solution and ensure that a local team remains in place, alongside the TikTok platform,” it said on Tuesday.Under Canadian law, the government can assess potential risks to national security from foreign investments, such as the TikTok proposal. The law prevents the government from revealing the details of such investments.Last month’s order stopped short of blocking Canadians’ access to the popular social media platform. TikTok has more than 14 million monthly users in Canada, according to the company.The Canadian order followed similar action in the U.S. where President Joe Biden in April signed a law requiring Bytedance, which owns TikTok, to sell its U.S. assets by Jan. 19, 2025 or face a nationwide ban.On Monday, TikTok and Bytedance separately asked an appeals court to temporarily block the law pending a Supreme Court review. More