US producer prices temper optimism over slowing inflation

Today’s top stories

• UK chancellor Jeremy Hunt announced a consultation on reforming financial services rules that the government claimed would make the City more competitive against global rivals. Critics warned, however, that removing regulations separating investment banking from retail banking could make the country a more risky place to do business. Hunt defended his plan and denied he was forgetting lessons from the 2008 crisis.

• Consolidation in the rapid delivery app market accelerated with Getir’s $1.2bn acquisition of rival Gorillas. The trend highlights how investors are turning against lossmaking start-ups.

• Brazil’s president-elect Luiz Inácio Lula da Silva named workers’ party loyalist Fernando Haddad as finance minister — disappointing investors’ hopes of a more market-friendly figure.

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Good evening.

What can today’s data on producer prices in the world’s two biggest economies tell us about the trajectory for global inflation in the months ahead?

In the US, PPI cooled a little in November to 7.4 per cent from October’s 8.1 per cent, but the less than expected fall showed high inflation may be around a little longer than investors had hoped.

US stock futures fell sharply on the news but today’s data are not expected to deter the Federal Reserve from slowing down its programme of interest rate rises when it makes its next decision on Wednesday, shortly after the release of new consumer price index numbers.

Although the slowdown in China could muddy the outlook, there have been several signs in recent weeks that the logistical problems facing US business have been fading, helping reduce costs.

Freight rates have fallen, with rates for shipping goods from Asia to ports on the US west coast down 87 per cent in the past year, to a level just 7 per cent above the same period in 2019. Congestion has eased, with progress made on labour shortages. There have also been improvements in warehouse space that had left some stores short of goods during last year’s holiday season.

Meanwhile, US politicians last week intervened to stop a threatened freight rail strike, which business groups estimated could have cost the US economy $2bn per day.

Earlier on Friday, China reported producer prices fell for the second consecutive month, this time by 1.3 per cent, as Covid-19 lockdowns and other pressures dented activity. The trend was also seen in the recent PMI survey, which showed Chinese manufacturing shrinking faster than expected.

China also released CPI figures for November on Friday, showing the slowest pace of growth in eight months, down from 2.1 per cent in October to 1.6 per cent.

Although the speed of transition may not yet be clear, today’s data add to evidence in recent weeks that the global surge in inflation is faltering. As well as shipping rates falling, commodity prices and inflation expectations have begun to subside.

In Germany, factory gate prices fell 4.2 per cent in October compared with the previous month — the largest monthly drop since 1948. In the UK they have been slowing since the summer, with new data due next week.

Nearly all the G20 group of leading economies publishing October PPI data have reported a slower pace of annual growth than in the previous month, including Spain, Mexico, Portugal and Poland.

Need to know: UK and Europe economy

British consumers have cut back on spending more than almost any other industrialised country, according to an FT analysis. Spending in the three months to September was 3.2 per cent below pre-pandemic levels — the biggest fall among the G7 economies. Meanwhile, the public’s view of the Bank of England’s handling of inflation has plummeted.

UK green groups and MPs hit out at the go-ahead for Britain’s first new coal mine in 30 years, rather than importing coal. Campaigners said the move tarnished the UK’s role in phasing out fossil fuels.

UK ministers blocked a pay deal that could have ended the current bout of rail strikes by adding tough new conditions at the last minute.

Western officials hit out at Ankara for disrupting oil tankers’ journeys through Turkish waters over insurance fears. They said most of the vessels were loaded with oil from Kazakhstan, not Russia, and so were not subject to new rules preventing access to insurance.

The EU has sealed a trade deal with Chile that will improve the bloc’s access to lithium, copper and other minerals vital to the renewable energy industry as it pivots away from Russian gas.

Need to know: Global economy

Peru is engulfed in political crisis after president Pedro Castillo was ousted by lawmakers after trying to shut down congress before a vote on his impeachment. LatAm editor Michael Stott says Castillo’s attempted coup “was as incompetent as his attempts at government” and masks a deeper problem with Peru’s political system.

Benjamin Netanyahu is poised to return to power in Israel at the head of its most rightwing government ever, which critics say risks turning the country into a theocracy. He has until Sunday to reach a final coalition agreement, but can seek a two-week extension if needed.

The combination of a G7 price cap on Russian crude and supply disruptions would normally send oil prices higher — so why have they dropped? Read our explainer.

New data from the McKinsey Global Institute show the outsize role of a small number of big cities in global economic growth. Half of the increase in global output since 2000 was generated by regions making up less than 1 per cent of the world’s landmass.

Need to know: business

The US Federal Trade Commission said it would sue to block Microsoft’s $75bn acquisition of video game maker Activision Blizzard over competition concerns.

Trafigura, the Swiss-based commodity trader, reported profits more than doubled on the previous year to $7bn as it benefited from energy market volatility. The company has assets ranging from mines and ports to energy infrastructure across 150 countries.

ExxonMobil said it would expand its share buyback programme to $50bn, despite criticism it was cashing in on the soaring price of crude and natural gas.

The Financial Stability Board, the world’s most powerful group of global financial policymakers, said “urgent action” was needed to fix rules for failing clearing houses and insurers.

Donald Trump’s business empire sustained its first legal blow as the Trump Organization faced its first criminal conviction on 17 counts of tax fraud.

Science round-up

Covid-19 infections increased for a second week in England and rose for the first time in a month in Northern Ireland. The outlook for the remainder of the UK remains uncertain.

China is obscuring the scale and severity of the current Covid outbreak by under-reporting cases and fatalities, analysts warn. Meanwhile, Beijing is running out of medical supplies. Dr Anthony Fauci, Joe Biden’s chief medical adviser, urged Beijing to start importing western RNA-based vaccines to deal with the spread.

Air pollution continues to cause thousands of premature deaths in Europe this year while the continent is off-track for air pollution targets, according to new data from the EU’s environmental agency. Read more in the latest Europe Express.

An artificial intelligence spin-off from Google’s DeepMind is getting closer to securing its first commercial deal to create new drugs.

Science commentator Anjana Ahuja says the high production costs of lab-grown meat may mean the industry struggles to take off.

Researchers now have access to one million extra years of history from the discovery of the world’s oldest DNA in Greenland. The 2mn-year-old material (beating the previous 1mn-year-old sample from the tooth of a mammoth) offers scientists new clues as to how ecosystems adjust to climate change.

Covid cases and vaccinations

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Something for the weekend

The FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not have a go with today’s cryptic crossword?

Some good news

A photo of two stroppy penguins has won the People’s Choice category at this year’s Comedy Wildlife Awards. Photographer Jennifer Hadley said: “I really love this photo contest because . . . it really shows off the personalities of the animals. Plus, it helps raise awareness of various wildlife and funds conservation efforts.”