No short-term solutions to inflation

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The ever-present threat of inflation resurfaces this week. The US will release inflation figures for August tomorrow, and economists polled by Reuters expect the consumer price index to fall 0.1 percent each month, after flat in July, with a year-over-year value of 8.1 percent for August, down from 8.5 percent a month earlier.

However, don’t expect such positive news to moderate aggressive pressure from the Federal Reserve to curb the rise in the cost of living. Chairman Jay Powell and Vice Chairman Lael Brainard vowed last week to continue raising interest rates, raising expectations for a third consecutive 0.75 percentage point hike later this month.

The mood was mirrored in foreign exchange markets, where the dollar started the week on a downside note as traders priced in a narrowing of policy differentials between the Fed and other central banks.

Meanwhile, India has imposed export controls on several varieties of rice in an effort to strengthen food security and contain inflation, which is rising amid supply disruptions caused by the Covid-19 pandemic and the war in Ukraine. However, it is likely that this move will also increase inflation elsewhere, as rice is one of the most consumed staple foods worldwide.

The invasion of Ukraine continues to fuel rising raw material and energy costs, hitting Europe particularly hard. While the surprisingly rapid success of Ukrainian troops in regaining territory from Russian forces has raised hopes of a turning point in the nearly seven-month-long conflict, the war and its impact on the global economy are far from over.

According to FT columnist Gideon Rachman, Ukraine’s military success moves the conflict into an even more dangerous phase as Russia attempts to regroup and perhaps escalate its attacks. All of this means we have to brace ourselves for many more months of disrupted times.

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Need to know: the economy

China has emerged as a rival to the IMF in the volume of emergency loans provided to countries at risk of a financial crisis. Pakistan, Sri Lanka and Argentina have collectively received more than $32 billion since 2017, data shows.

Here is a sense of enlightened self-interest at work. Analysts said the purpose of the emergency loans in most cases was to prevent defaults on infrastructure loans provided under China’s Belt and Road Initiative. However, FT senior trade writer Alan Beattie warns that the lack of oversight of these bilateral loan agreements poses a real danger (premium subscribers only).

Latest for UK and Europe

The UK economy stagnated in the three months to July, with output flat over the period, growing by 0.3 percent in the three months to April.

There was better news in the long-standing battle between the UK and the EU over the Northern Ireland Protocol, with Brussels offering a plan to reduce physical customs controls across the Irish Sea to just a few trucks a day.

Maroš Šefčovič, the EU’s Brexit chief, expressed hope that the proposal would pave the way for a deal with newly appointed British Prime Minister Liz Truss on post-Brexit trade arrangements in Northern Ireland.

Worldwide last

The renminbi is on track for its biggest annual decline against the dollar, despite Beijing taking its strongest steps to stem the currency’s decline. Covid lockdowns and sputtering economic growth have contributed to increasing pressure on the Chinese currency.

The 8.7 percent decline against the dollar this year (to Rmb 6.96) puts the renminbi on course for the largest annual decline since China released its long-standing currency peg and moved to a managed floating exchange rate in 2005.

Need to know: business

The energy crisis should spur a regulatory overhaul in the sector, similar to the more robust banking supervision following the 2008 financial crisis, writes FT deputy editor-in-chief Patrick Jenkins in the Inside Business column today.

In the meantime, companies are doing everything they can to keep the nuisance to a minimum. Some of Europe’s most energy-intensive industries – including some of the world’s largest steel producers – are finding ways to reduce their power consumption, our correspondents report.

High inflation has made people reluctant to buy new washing machines and other white goods, appliance maker Electrolux warned. The company, which is undertaking major cost savings as a result, said the problem was exacerbated by high inventory levels at retailers. It warned that third-quarter earnings would fall significantly compared to the second quarter.

Wall Street is counter-offensive in its war with Silicon Valley for talent, attracting computer engineers frustrated by the hiring freeze and layoffs at the embattled cryptocurrency and tech companies, according to FT correspondents in New York.

The world of work

Corporate photos are taken way too seriously, according to FT columnist Pilita Clark. One click on the gymnastic LinkedIn profile picture of Klarna co-founder and CEO Sebastian Siemiatkowski is perhaps the most extreme example.

Making yourself indispensable at work may seem like a good career move, but the reality is that it’s a curse, resulting in burnout for you and resentment from your colleagues, as Miranda Green explains.

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What good news . . .

A small particle that can travel through concrete can save many lives by detecting flaws in buildings before they collapse. Geoff Manaugh explains the magic of muons.