Inflation, inflation, inflation

This is an audio transcript of the FT News Briefing podcast episode: Inflation, inflation, inflation

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, September 29th. And this is your FT News Briefing.

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Inflation is the word of the day here at the briefing. Inflation fears led to the biggest sell-off in the US stock market since May. Inflation has become a political weapon in the latest battle in US Congress, and fuelling fears of inflation are rising energy prices. And we’ll take a little detour from inflation and talk about China’s latest attempt to clamp down on cryptocurrency trading.

Ryan McMorrow
China’s been trying to get rid of Bitcoin and other cryptocurrency for years now, and people have always found a way around it.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Prices are going up in part because of the stimulus measures the Federal Reserve put in place during the pandemic. Inflation has prompted the US central bank to indicate it could raise interest rates next year, and inflation is affecting markets and US politics. So first, politics. Right now US Republican lawmakers are battling Democrats’ attempt to lift the government’s borrowing limit. Yesterday, Treasury secretary Janet Yellen warned that the US risks running out of money by October 18th if Congress can’t agree to raise the debt ceiling. Republicans have argued that raising the debt limit would fuel inflation because it would mean more money pumped into the economy. Our US political correspondent, Lauren Fedor, reminds me that lawmakers aren’t just thinking about the economy here, but also next year’s midterm elections.

Lauren Fedor
And when it comes to the Republican side, they see inflation, the economy, the Republican’s ability to handle the economy as a winning issue. And so if they can go into next year’s midterm saying, you know, “We’re the party that will make you richer. We’ll make sure that, you know, prices are manageable and you have more money in your pocket for you and your family at the end of the day. And the Democrats are going to make you poorer.” They certainly see that as a winning message. Democrats’ argument is that Republicans are conflating multiple issues, and they will argue that the increase in borrowing is required in order to afford, pay for things that have already been in motion, programmes that were already approved last year and even further back in the Trump administration.

Marc Filippino
Now, Lauren, we should remind listeners that in most years, the debt limit being raised is a routine event in Washington, right?

Lauren Fedor
Yeah, I mean, you’re right in the sense that the debt ceiling has been raised dozens of times in recent years. In fact, in the Trump administration alone, the Republicans voted to to raise the debt ceiling three times. They’ve obviously changed their tune here. And a lot of that has to do with the political landscape that we’re in. You know, in this case, the Republicans are leaning really hard into their argument that they think that the Democrats have been irresponsible when it comes to public spending. And they’ve actually sought to link this whole debate to another debate that’s causing a lot of headaches in Washington. And that has to do with Joe Biden’s legislative agenda. You know, you might remember that there’s this $1.2tn infrastructure bill still in the cards. And then there’s a much bigger $3.5tn budget plan. The Republicans largely say this is way too much money, this is way too much spending. And they’re basically arguing this is irresponsible, and we’re not gonna underwrite it any more.

Marc Filippino
Lauren Fedor covers Capitol Hill for the FT.

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Now, in financial markets, inflation and the looming prospect of higher interest rates are prompting investors to sell government bonds. A sell-off that began last week continued into this week and has rattled equities as investors reposition themselves for the prospect of more hawkish central bank policy. It hit tech stocks especially hard. Yesterday the Nasdaq fell almost 3 per cent. The S&P 500 ended the day more than 2 per cent lower, its biggest loss since May. Here’s the FT’s US capital markets correspondent, Kate Duguid.

Kate Duguid
So investors were somewhat surprised, I think, last week by both the Fed and the Bank of England pushing forward rate hike expectations. Both the Bank of England and the Federal Reserve also increased their expectations of inflation. So while inflation numbers haven’t actually risen yet, the fact that both of these very important central banks are expecting higher inflation for longer has investors somewhat spooked. What happened yesterday was that we also saw big losses in the tech sector. Investors view tech valuations very much in terms of the company’s future growth. So what that means is that when you’re facing the prospect of higher inflation, higher interest rates, that growth, that future growth will be impacted.

Marc Filippino
The FT’s Kate Duguid covers US capital markets.

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Adding to inflation fears is the sharp rise in energy prices, oil, natural gas, coal, you name it, energy is getting more expensive just as winter is approaching. Yesterday, Brent crude rose past $80 a barrel for the first time since 2018.

Derek Brower
It’s really about the supply and demand fundamentals, as they call them, in the market.

Marc Filippino
Derek Brower is our US energy editor. He says those supply constraints are pushing up prices in other sectors, too.

Derek Brower
Opec, the cartel of oil producers, is cutting a lot of supply. Still, US shale producers these days are not growing very quickly at all because stock market investors in shell companies don’t want them to grow. So they’re not spending on drilling. So those two forces are coming to bear on the supply side. And then we have this recovery of the global economy and the reopening of economies. So there’s a big surge in demand as well.

Marc Filippino
And oil prices could go even higher. Derek cites a Goldman Sachs report that predicts oil going to $90 by the end of the year.

Derek Brower
And oil is still the lifeblood of the global economy. So it will feed through into all of the prices. And governments around the world are already worried about inflation. The other problem is that other commodities, other energy commodities in particular, are rising fast in their price as well. So you have natural gas that’s hitting record highs. Record prices in Asia and Europe and in the US is up about 200 per cent in the past year. So natural gas is used for heating, it’s used for electricity, and those costs will feed through to the wider economy into household bills as well. So that these are big problems that are facing consumers. And because they face consumers or voters, they also face governments in economies like the UK, where there’s an energy crisis right now, in the US, where Joe Biden has already spoken about his concern around rising gasoline prices, and in China, where there are power outages right now.

Marc Filippino
Derek Brower is the FT’s US energy editor.

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China’s government isn’t just dealing with power outages. It’s trying to wrap its regulatory arms around cryptocurrency. The country’s been a big market for cryptocurrency trading and bitcoin mining. Authorities have pushed parts of the domestic industry offshore, though. And last week, the central bank and nine other agencies made it illegal for overseas exchanges to provide services to Chinese users. Ryan McMorrow is the FT’s tech correspondent in Beijing.

Ryan McMorrow
From the beginning, they’ve been very wary of any digital currency that could let Chinese people thwart capital controls. Like, an ordinary Chinese person is, is only allowed to convert the equivalent of Rmb50,000 into $50,000 per year. And you’re supposed to have very specific uses for that. So cryptocurrency is a way to get around capital controls, and it’s also just a way to get around like their strict control of the currency. The initial coin offerings was one of the first areas they cracked down on because they saw that leading to fraud and various other things.

Marc Filippino
So, Ryan, realistically, how effective could these latest curbs be?

Ryan McMorrow
China’s been trying to get rid of Bitcoin and other cryptocurrency for years now, and people have always found a way around it. But if the exchanges no longer let Chinese people trade on them, then it might be very hard for Chinese people to find buyers and sellers.

Marc Filippino
Yeah, and how have those cryptocurrency changes responded? Are they generally doing what Beijing wants or no?

Ryan McMorrow
So far it’s Huobi, the largest exchange, has said they’re going to offboard Chinese users. Binance has made it slightly harder. And other exchanges, I don't, I don’t think they’ve really put out any announcements yet. So it’s not like the entire offshore exchange world has said no more Chinese users. That is definitely what Beijing wants. But so far, there are some that seem to be still willing to onboard Chinese users and let Chinese users trade.

Marc Filippino
Ryan McMorrow is the FT’s China technology reporter.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.