Inflation surges heap pressure on global policymakers

Good evening,

Today’s data showing UK CPI at its highest rate in 30 years and US producer prices rising at record levels are the latest reminder that inflationary pressures around the world show little sign of abating.

The higher than expected jump in UK inflation to 7 per cent in March, up from 6.2 per cent the previous month, was driven by surging fuel prices that leapt 9.9 per cent, resulting in an annual rate of increase of 30.7 per cent. The pain felt by consumers was highlighted by an academic study yesterday that showed Britons were now more worried by the cost of living than catching Covid-19.

British companies are also feeling the strain. Tesco, the country’s biggest supermarket group, said this morning that its earnings would suffer as it tried to remain competitive in the face of soaring costs and squeezed household budgets.

US producer prices rose a more than expected 11.2 per cent in March — the quickest pace since the year-on-year rate was first calculated in 2010 — as the war in Ukraine begins to affect the world’s largest economy, piling pressure on American businesses.

The US PPI reading comes hot on the heels of yesterday’s announcement that CPI had hit 8.5 per cent, the fastest rate of increase since 1981, and — as in the UK — adds more pressure on the country’s central bank to take action against rising prices. Although the monthly rise of 1.2 per cent was the fastest since September 2005, there was some better news in that “core” CPI (stripping out volatile items such as food energy) was up just 0.3 per cent, the slowest increase since September.

US Federal Reserve official James Bullard told the Financial Times it was a “fantasy” to think the bank could bring down inflation without raising interest rates to the point where they could constrain the economy, as he called for an increase to put the brakes on growth.

US president Joe Biden’s latest ploy to ease the squeeze on consumers involves temporarily relaxing restrictions on the amount of ethanol in petrol, which could save motorists 10 cents a gallon, albeit at the risk of causing smog.

Concerns are also intensifying elsewhere. New Zealand today raised interest rates by the biggest amount in 22 years. In mainland Europe, Otmar Issing, one of the founding fathers of the euro, criticised the “misguided” response of the European Central Bank, which he said had “lived in a fantasy” and suffered from a “misdiagnosis” of the reasons for the rise in inflation and now risked the prospect of stagflation.

The ECB announces its latest policy moves tomorrow.

Browse our inflation tracker to compare the latest figures worldwide.

Disrupted Times is taking a short Easter break — we’ll be back on Wednesday April 20

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Need to know: the economy

The Shanghai lockdown has hit production in Kunshan, one of the world’s largest electronics manufacturing hubs, exacerbating strains on global supply chains. Asia editor Robin Harding says the economic consequences for the rest of the world of locking down China’s largest onshore financial hub and biggest city are huge. The US has ordered non-essential consulate staff to leave.

An EU ban on Russian energy would ignite a “sharp recession” in Germany and send output down 2.2 per cent next year with the loss of 400,000 jobs, according to the country’s top economists. Kyiv however is urging Brussels to go ahead with an embargo. German investors are also becoming more pessimistic about their country’s future.

Russia said it would it sue if sanctions forced it to default on its bonds but academics and lawyers have dismissed the threat as “payments theatre”. Robert Armstrong in his (award-winning) Unhedged newsletter says sanctions are hurting the country badly. Moscow forecasts economic output will fall 10 per cent this year, according to a former finance minister.

Latest for the UK and Europe

UK unemployment fell back to its pre-pandemic level of 3.8 per cent at the start of this year, according to official data, but the employment rate remained flat at 75.5 per cent. Vacancies remain high and the inactivity rate has risen as people left the workforce for family reasons, retirement or sickness.

The UK is to become the first country in the world to pay pharma companies a fixed fee for antibiotics to tackle the growing problem of antimicrobial resistance, which kills more than 1mn people a year. The “subscription” model aims to incentivise companies to develop new drugs and stop overprescribing.

Ukraine finance minister Sergii Marchenko appealed in an FT interview for immediate financial support for his country, with the gap between spending and revenues expected to hit $7bn a month in April and May.

Global latest

The International Energy Agency cut its global oil demand forecast from 99.7mn barrels a day this year to 99.4mn, but it said the market would avoid a “sharp” deficit as emergency reserves and slower demand from China offset lower production from Russia.

The war will cut growth in goods trade this year by a third from 4.7 per cent to 3 per cent, according to new World Trade Organization forecasts. It also cut economic growth forecasts from 4.1 per cent to 2.8 per cent, with 3.2 per cent estimated for 2023. WTO chief Ngozi Okonjo-Iweala wrote in the FT that policymakers should fix structural weaknesses in a co-ordinated response to global supply chain problems.

Sri Lanka’s economic and currency crisis intensified as the country’s finance ministry suspended payments on its government bonds. It has turned to the IMF to formulate a recovery plan and receive financial assistance. The Lex column warned that a bailout could create a blueprint for similar situations elsewhere. The turmoil is a blow to the Rajapaksa family, which has dominated the country’s politics for years.

Need to know: business

Stockpiles of some of the world’s most important industrial metals have dropped to critically low levels because of surging power prices and the war in Ukraine. Aluminium, copper, nickel and zinc inventories have plunged by as much as 70 per cent over the past year.

BlackRock, the world’s largest money manager, announced better than expected profits of $1.46bn in the first quarter, as inflows from investors held up despite the turmoil in financial markets. However, JPMorgan’s profits have fallen 42 per cent to $8.28bn as dealmaking slowed and the bank set aside $1bn in loan-loss reserves. Here’s what to watch as US earnings season gets under way.

Fund managers have been caught out by the rare event of global stocks and bonds falling at the same time in the first quarter. The two key markets underpin global finance and the synchronised decline makes investors attempts to balance risks that much more difficult. Almost three-quarters of large institutional investors were pessimistic about global economic growth, according to a Bank of America survey, the biggest proportion since 1995.

Finish telecom giant Nokia has followed rival Ericsson and quit Russia. The two companies, along with Chinese groups Huawei and ZTE, are the dominant players in the Russian radio network equipment market. The former deputy chief of Aeroflot wrote in the FT that the Russian business community should stand up against President Vladimir Putin.

As we highlighted in Monday’s Disrupted Times, airlines are having a tough time meeting surging customer demand while losing waves of staff to Covid-19. British Airways is reeling from the impact of the virus on top of IT problems and the cancellation of 1,200 flights so far this year. EasyJet has been one of the worst hit but still hopes to report a narrowing of losses for the six months to the end of March.

The outlook is rosier for US carriers. American Airlines, the largest in the US, revised up its revenue outlook for the first quarter, while Delta told the FT it had “never sold more tickets” than in the past five weeks. US airlines are lobbying to make sure the end of mandatory mask wearing on board proceeds as planned next Monday.

The coronavirus crisis has brought home the extent to which global pharmaceutical supplies depend on Asia, even for the most basic ingredients. Our colleagues at Nikkei Asia conclude their series on China’s role in the global health supply chain and how it might affect the next pandemic.

The World of Work

Flexible working helped many workers with disabilities prosper during the pandemic, but how can we make these improvements permanent? Isabel Berwick talks to a campaigner and an FT staff member about disability inclusion in the latest Working It podcast.

Get the latest worldwide picture with our vaccine tracker

And finally . . . 

Air quality is becoming an ever more important factor for homebuyers seeking a new property, writes health and science reporter Oliver Barnes. Cleaner air is now on a par with closeness to family and friends and access to public transport as a motivation for moving house.