Home News Inflationary pressures boil over | Financial Times

Inflationary pressures boil over | Financial Times

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More signs emerged today of how surging inflation is affecting economies and stretching the patience of businesses, as well as hitting consumers who are suffering a cost of living squeeze.

In the UK, protesters blocked motorways to vent their anger at rising fuel prices, with the average cost of filling a family car now above the £100 mark. Chancellor Rishi Sunak has cut duty on fuel by 5p a litre but the competition watchdog is investigating whether this is being passed on to motorists.

Meanwhile, a new survey today from the Resolution Foundation says many UK households are “brutally exposed” to inflation after growth in real disposable income for working-age families averaged just 0.7 per cent in the 15 years leading up to the coronavirus pandemic. People in rental accommodation, single parents and those with young children are particularly badly affected.

The FT editorial board said the UK must decide how to share the pain of its many economic problems, including the possibility that inflation will still be rising as it starts to fall back elsewhere. “The cost of energy, a deterioration in trade, the loss of a tranche of workers — all have the same consequence: the country is poorer than it thought it would be,” it said.

UK inflation of 9.1 per cent may be the highest in the G7 but pales in comparison with Turkey, where data today showed it was in sight of 80 per cent, partly due to the unconventional approach of president Tayyip Erdoğan, who has firmly rejected the mainstream approach to inflation-busting of raising interest rates.

Inflation is also having a severe effect on trade. In Germany, Europe’s most export-led economy, new figures this morning showed the first monthly trade deficit since 1991 as import costs soared while exports were hit by supply chain disruption. The pressure of global inflation is also calling into question Japan’s ultra-loose monetary policy, as our latest Big Read explains.

The business world is increasingly voicing its anguish. Amazon founder Jeff Bezos fell into a spat with Joe Biden at the weekend, accusing the US president of “misdirection” after Biden had hit out at price gouging on petrol forecourts. The only inflation-proof sector at the moment, at least according to FT Alphaville, appears to be drug dealing.

The big question remains: what can or should policymakers do to mitigate the situation? FT commentator Martin Sandbu says central banks need to keep their cool and be sure that economic challenges are really long-lasting before taking action that could sacrifice jobs and growth.

“Monetary contraction on the cusp of a recession will make things worse for no benefit,” he concludes. “Governments have to put in place support for those worst hit by the jump in prices. But maybe central banks — for the very sake of monetary and economic stability — should treat inflation with more benign neglect.”

Latest news

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Need to know: the economy

UK opposition leader Sir Keir Starmer said he would fight prime minister Boris Johnson at the next election over the economic effects of Brexit, addressing the “mess” caused by Johnson’s Brexit deal and mending relationships with the EU. Germany and Ireland said at the weekend there was “no legal or political justification” for Westminster to rip up Northern Ireland’s post-Brexit arrangements.

Latest for the UK and Europe

Labour shortages are leading to “catastrophic” food waste say UK farmers, as the peak season for harvesting soft fruit and vegetables approaches with only a limited number of visas available for overseas workers.

The EU is considering the creation of an EU-wide sanctions authority as it pushes for tougher and more consistent penalties related to the war in Ukraine. The task could be given to a new body similar to the Office of Foreign Assets Control in the US or by beefing up the powers of its planned Anti-Money Laundering Authority. Turkey has detained a Russian cargo ship accused of carrying stolen grain.

Global latest

Nato’s united response to Russia’s invasion of Ukraine has masked new quarrels about the war’s rising economic costs. Our Big Read examines whether the rhetoric can be matched by increased financial contributions from member states.

The forecast boom for Mexico as American companies sought to bring production facilities closer to home has failed to materialise. This Big Read explains why President Andrés Manuel López Obrador is copping the blame.

Argentina was plunged deeper into crisis at the weekend as finance minister Martín Guzmán quit the ruling coalition, further unsettling investors worried about surging inflation and the country’s public finances.

Need to know: business

There was mixed news from the air travel sector as it struggles to take flight after the turbulence of the pandemic. EasyJet’s chief operations officer Peter Bellew quit after the company cancelled thousands of flights over the summer but low-costs rivals Ryanair and Wizz Air reported surges in June passenger numbers. Ryanair chief Michael O’Leary warned that ticket prices would rise over the next few years as fuel, staff costs and air traffic control charges increase.

The £15bn takeover of UK Power Networks, Britain’s largest electricity distributor, by a consortium led by KKR and Macquarie, has collapsed after rising inflation prompted a last-minute price rise by its Hong Kong owner.

Pret A Manger has returned to profit for the first time since the start of the pandemic as the sandwich chain shifted focus away from city centres to out-of-town outlets.

The surge in business that led to massive congestion at the Port of Los Angeles last year became a symbol of global supply chain problems. There are now fears that disruption could return if employers do not meet dockers’ pay demands after their latest contract ended on Friday.

More than $40bn of European corporate bonds are trading at distressed levels in another sign of how the darkening economic outlook is throwing doubt on companies’ ability to pay their debts. “Credit markets have rapidly moved towards pricing in a recession,” said one analyst.

Column chart of Face value of debt with spreads above 10 percentage points (€bn) showing Pile of distressed European corporate bonds rapidly rises

The European Central Bank is concerned about eurozone countries’ approaches to cryptocurrency rules and will raise the need for harmonisation at a meeting tomorrow. Crypto evangelists still believe they can make the world a better place, writes Lex’s Elaine Moore.

Cruises have bounced back from their near-death experience during the pandemic but now face an iceberg of debt. The three big listed companies — Carnival, Royal Caribbean and Norwegian — have all more than doubled their gross debt over the past two years.

More than a third of the UK company directors struck off in recent months were found to have abused the government’s coronavirus loan schemes or job support programme, according to official data.

The World of Work

Company financial executives may be worried by the lack of senior staff with experience of surging inflation and geopolitical upheaval, but existing employees have coped pretty well with the chaos caused by a global pandemic, says senior business writer Andrew Hill.

Labour shortages in leisure and hospitality are indicative of a bigger and more serious trend, writes global columnist Rana Foroohar: the loss of women from the workforce because of the lack of affordable and flexible childcare.

Shortages are also leading to more companies considering job applications from those with a criminal past, says columnist Pilita Clark.

Have companies encroached too far into our personal lives? Emma Jacobs considers the rise of the nanny employer.

Covid cases and vaccinations

Total global cases: 543.4mn

Total doses given: 12.1bn

Get the latest worldwide picture with our vaccine tracker

And finally…

Hong Kong’s reputation as Asia’s top international financial centre has taken a battering from three years of protests, political crackdowns and strict Covid lockdowns. Asia financial correspondent Tabby Kinder looks at the future of the city in our latest FT film.

Video: Hong Kong’s future as Asia’s financial centre | FT Film

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