Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best Tortoise experience possible, please make sure any blockers are switched off and refresh the page.

If you have any questions or need help, let us know at memberhelp@tortoisemedia.com

Sensemaker: Sticker shock

Sensemaker: Sticker shock

What just happened

Long stories short

  • A truck carrying more than 150 migrants from Central America crashed in southern Mexico, killing 54 people and injuring many others.
  • Vladimir Putin described the treatment of Russian speakers in eastern Ukraine as “genocide”, as he continues to amass troops on the border.
  • A jury in Chicago found Empire actor Jussie Smollett, who is Black and gay, guilty of faking a hate crime against himself to raise his celebrity profile.
  • The High Court ruled that Wikileaks’ co-founder Julian Assange can be extradited to the US to face espionage charges.

Sticker shock

Inflation is spiking. Central bankers and heads of government are hoping against hope it’s a passing hangover from Covid, but evidence is mounting that it’s back in earnest, for years rather than months. If so…

  • inequality between income groups and sectors of the workforce will widen;
  • inequality between rich and poor countries will widen;
  • pensioners and others on low fixed incomes will be hit hardest; and
  • the political ripple effect on both sides of the Atlantic and in Asia could be profound.

Causes

Pent-up demand for goods and energy is outstripping supply as economies reopen. Gas prices more than doubled and oil prices nearly doubled between January and November. 

Labour shortages exacerbated by Covid have brought unsolicited above-inflation pay offers in some sectors (haulage, construction) and negotiated ones in others (retail, supermarkets) even as inflation trebled in most developed economies.

Shipping costs that rose eight-fold from pre-Covid levels aren’t expected to return to normal until 2023. “The higher cost of logistics is not a transitory phenomenon,” one analyst tells Reuters.

A global wheat shortage caused in part by climate change drove prices up by 40 per cent as average food prices rose nearly a third to their highest level in a decade. 

News

US numbers. Biden personally sought to calm voters and markets ahead of new data due today that’s expected to show US inflation at 6.8 per cent, up from 6.2 per cent in October. That was already the fastest rate in 31 years. In January the rate was 1.4 per cent.

UK wages. Tesco workers accepted a 5.5 per cent rise backdated to July with an extra 0.5 per cent from February, after rejecting a 4 per cent offer and threatening to strike over Christmas – even though UK inflation isn’t expected to hit 5 per cent until next April. Morrisons, DHL and Harrods have also caved to strike threats. The Treasury is meanwhile urging government not to be so generous to two million public sector workers for fear of an inflationary spiral.

Union power. The Tesco deal was a win for Unite. In the US, unionisation efforts are stirring at Amazon and Starbucks after John Deere, the tractor giant, bowed to pressure from the United Auto Workers union to end a strike with a landmark above-inflation pay deal with $8,500 signing bonuses, lump sum payments, boosted benefits and a 20 per cent pay rise over the life of the new contract.

Views

This shall pass. Biden’s commerce secretary, Gina Raimondo, said yesterday she was still “quite confident” inflation would subside as soon as supply chain and labour market conditions ease. 

Keep calm, carry on. “It’s largely transitory,” says Jack Leslie, senior economist at the Resolution Foundation, who attributes the current UK spike largely to fluctuating world energy prices and the low base from which inflation is rising post-Covid. “There are no fundamental changes in the labour market.” 

Dream on. The transitory view is a serious error that ignores the long-term inflationary impact of new wage settlements and structural changes in the economy and workforce as a result of Covid, according to Mohamed El-Erian, former head of Obama’s Global Development Council and a prominent inflation hawk.

“We have ample evidence that there are behavioral changes going on,” he told NBC last month. And their effects will be compounded by i) supply disruptions lasting longer than expected, ii) companies passing higher costs on to customers and iii) customers bringing forward purchases in expectation of higher prices down the road.

El-Erian is scathing about central bankers, especially the new Fed Chairman Jay Powell. He says they need to

  • wind down quantitative easing faster;
  • do more to prepare businesses and consumers for rising interest rates; and
  • restore their own credibility by apologising for misreading the return of inflation as transitory.

Call it the Fed cred shred.

Inflation and politics

Biden is worried. He insisted yesterday that today’s new US numbers don’t take into account recent dips in energy prices that will save Americans a few dollars at the petrol pumps. Republicans will say his multi-trillion spending plans are fuelling inflation even so.

Johnson should be, too. Here is Liam Byrne, former Labour treasury secretary, at our ThinkIn on inflation last month: “If you are a pensioner and you’ve done the right thing all your life and you’ve saved hard and you see your pension go up by £4.25, which is what happens next April, and you’re on a fixed income and you just can’t buy what you used to be able to buy, then you start getting pretty concerned about whether your pension is going up fast enough, and you hold the government to account for that.”

The Conservatives won three million more voters over 65 than Labour at the last election. Inflation, Byrne says, could put them in play. As a Labour MP he would say that, but his successors at the Treasury would be foolish not to listen. 


belonging identity, society, beliefs, countries

Jesus Malabanan
Maria Ressa, the Filipino American journalist, will take home the Nobel Peace Prize today for her work exposing President Rodrigo Duterte’s role in his country’s drug wars and in spreading misinformation on social media. But the celebrations are muted. A few days ago the Pulitzer prize-winning journalist Jesus Malabanan, who also reported on Duterte’s drug wars, was shot dead by two unidentified assailants while watching TV. The National Union of Journalists in the Philippines estimates at least 21 journalists have died since Duterte took power five years ago. Although no link between Duterte and Malabanan’s death has been confirmed, the president has not hidden his disdain for journalists. He told reporters in 2016 that “just because you’re a journalist you are not exempted from assassination, if you’re a son of a bitch”. Ressa still faces seven lawsuits brought against her by the Philippine state. She had to obtain special dispensation to attend the awards ceremony in Oslo today. 


New things technology, science, engineering

Starship
Elon Musk’s “superheavy” space rocket has received a notable imprimatur of approval from the MIT Technology Review. Musk wants the Starship to take people to the moon, Mars and beyond, and the review takes his ambitions seriously. It quotes a Brown University professor saying “Starship is, like, wow,” and Musk himself saying it could put a 100-tonne object on the surface of Europa, one of Jupiter’s 79 moons. The rocket is the biggest ever built, can in principle be refuelled in orbit and has already demonstrated that its boosters can return to base to be reused. It’s made by SpaceX, which cultivates a scrappy vibe at its newish Texan base, and you can’t help but sense some East Coast envy as the Ivy Leaguers peer west through their periscopes at this perennial upstart determined to beat Nasa at its own game. 


The 100-year life health, education, living, public poliCY

The insulin problem
Insulin isn’t a cure for diabetes, but it saves lives – at a price. The 10 per cent of Americans who have the disease are dealing with massively inflated costs. On average, insulin costs 800 per cent more in the US than other developed economies. For the uninsured or those with lower end insurance, that can be fatal. A missed dose of insulin, or rationing doses, can cause blindness, heart attacks, limb loss, coma or death. Fortune has produced a long read on why it’s so expensive. The short version: pharmacy benefit managers (PBMs) were set up to handle paperwork between insurance companies and drug producers. Those PBMs benefit from rebates they negotiate between drug companies and insurers. The higher the rebate, the more likely an insurance company is to cover the cost of a  drug. So drug companies increase their prices, and their rebates. The result: higher costs for consumers, higher profits for pharma and lower costs for insurers. And there is little competition in the market because of the complexities of producing insulin. Diabetics now account for 25 per cent of all healthcare spending in the US, where people still die every day because of being unable to access insulin. 


Our planet environment, natural resources, geopolitics

Secondary forests
Here’s a number to cheer a jaded soul: 78. It’s a percentage figure for the amount of “old growth forest attributes” (trees, undergrowth, biodiversity) that can return to former farmland when it’s allowed to revert to forest in Central and South America and West Africa. The New Scientist has a piece (reported in the Guardian) on a study of 77 sites in these regions where land that had been farmed with “low to medium intensity” was simply left to do its own thing. In most sites it didn’t just recover – it returned to tropical forest within 20 years, which Professor Lourens Poorter of Wageningen University in the Netherlands says was “way faster than we thought”. Does this mean there’s hope yet for the swathes of Amazonia felled for soybeans and cattle? We can but hope.


Wealth investment, fairness, prosperity

Nevergrande
Fitch, the credit ratings firm, placed mega Chinese property developer Evergrande in its “restricted default” category after it appeared to miss an $82 million payment to bondholders earlier this week. Fitch’s label means the company formally defaulted, but hasn’t entered into any bankruptcy filing or liquidation process that would halt its operations. Typically, bondholders would turn to the courts to push for a restructuring that would carve up the company between them. But the Chinese Communist Party controls corporate meltdowns of this scale to stop them spreading across the economy. Evergrande is so large that a sudden collapse would damage the country’s financial sector, and impoverish the Chinese buyers who’ve already paid for Evergrande apartments that haven’t even been built. There’s been no news or statement from the company or the Party yet.

Thanks for reading, and do share this around.

Giles Whittell
@GWhittell

Phoebe Davis
@phoebe_ivy

Edited and produced by Phoebe Davis.

Photographs Getty Images, Facebook, SpaceX