British annual inflation has hit a fresh 40-year high, official data showed Wednesday, further eroding workers’ wages and pressuring the Bank of England to keep on raising interest rates.
The rate edged higher to 9.1 percent in May from 9.0 percent in April, remaining at the highest level since 1982, the Office for National Statistics (ONS) said in a statement.
UK inflation is set to top 11 percent before the end of the year according to the Bank of England, fuelled by soaring energy prices that have raised the prospect of a global recession.
UK inflation increased in May on “continued steep food price rises and record high petrol prices”, said ONS chief economist Grant Fitzner.
This was offset by clothing costs rising by less than a year earlier and a drop in prices of computer games, he added.
Decades-high inflation is causing a cost-of-living crisis.
Britain’s railway workers are this week staging the sector’s biggest strike action in more than 30 years, as soaring prices erode the value of wages.
– ‘Severe pressure’ –
“The further increase in Consumer Prices Index inflation to 9.1 percent underscores the severe pressure that businesses and households are under,” said David Bharier, head of research at the British Chambers of Commerce.
“This inflationary surge sits alongside a poor economic outlook and unless the government acts with urgency to encourage businesses to invest, the chances of a recession will only increase.”
Countries around the world are being hit by soaring inflation as the Ukraine war and the easing of Covid restrictions fuel energy and food price hikes.
That has forced central banks to hike interest rates, risking the prospect of recession as higher borrowing costs hit investment and consumers further in the pocket.
The Bank of England has raised its key interest rate five times since December.
“The modest rise in CPI inflation… won’t prevent the Bank of England from raising interest rates further, but it may encourage it to opt again for a quarter-point rate hike at its next meeting in August rather than upping the ante” with a half-point rise, predicted Paul Dales, chief UK economist at Capital Economics.
It comes as Britain faces strikes across other sectors. Lawyers in England and Wales having voted to walk out from next week in a row over legal aid funding.
Teaching staff, workers in the state-run National Health Service and the postal service are also mulling strike action.
Sri Lanka bets on casino magnate to revive wrecked economy
Sri Lankan casino magnate Dhammika Perera entered parliament on Wednesday with a mandate to revive the bankrupt island nation’s wrecked economy — working alongside a premier who once accused him of corruption.
The 54-year-old Perera is a long-time loyalist of the powerful Rajapaksa clan, whom protesters have accused of mismanaging the country into its current predicament.
He replaces President Gotabaya Rajapaksa’s youngest brother, Basil, who resigned from parliament this month after stepping down as finance minister in April.
“He was nominated by the president and will shortly take over the investment promotion portfolio and enter the cabinet,” a ruling party official told AFP.
Perera will serve in a unity government formed to tackle the crisis alongside Prime Minister Ranil Wickremesinghe, who in 2015 accused the casino boss of being a “demon who protected the corrupt regime of Rajapaksas”.
Wickremesinghe has also described Perera as one of four most corrupt businessmen in the country.
Both men shook hands on Wednesday soon after Perera was sworn into parliament before the chamber’s speaker.
Perera — who also has interests in banking, hotels, manufacturing, logistics and exports — takes office at a time when Sri Lanka is suffering through months-long shortages of food, fuel and other essential goods.
Long queues form outside gas stations each day for scarce petrol supplies, while regular blackouts and runaway inflation have made life difficult for the island nation’s 22 million people.
The government has defaulted on its $51 billion foreign debt and is seeking an International Monetary Fund bailout.
Perera has claimed to have devised a plan to raise Sri Lanka’s per capita income more than threefold to $12,000 — a figure higher than China’s.
He has also pledged to address Sri Lanka’s critical foreign currency shortage by selling 10-year visas to foreigners willing to deposit at least $100,000 in local bank accounts — a scheme already in place since April.
Air tickets set to keep climbing from pandemic low: experts
Propelled by inflation, the price of air tickets has begun to take off again after tumbling during the pandemic, a reversal that looks set to intensify due to environmental pressures, experts say.
For members of the International Air Transport Association, gathered in Doha for their annual meeting this week, minds are focused on how far such increases risk undermining passenger growth targets.
The IATA is also pleading for government support in reconciling the long-term commitment to net zero carbon emissions with those ambitious targets.
The aviation industry has just gone through two years where planes flew with rows of empty seats, even as they offered fares much lower than before the Covid-19 pandemic.
But with the sector still mired in the red despite movement restrictions being largely lifted, the bargain bonanza for passengers is very much over.
In the United States, the average price of an internal flight has shot up, from $202 in October 2021 to $336 in May this year, according to the Federal Reserve Bank of Saint Louis.
In the European Union, the price of a return ticket before tax in April returned to that seen in the same month of 2019, after a near-20 percent fall in 2020, according to aviation research specialists Cirium.
The oil price shock stoked by Russia’s invasion of Ukraine is the most obvious factor in these price rises.
Airlines estimate that fuel prices will account for 24 percent of their total costs this year, up five percentage points from last year.
Ticket prices are also being stoked by wider inflation — now at 40-year-highs in developed markets — as well as stronger-than-expected demand for tickets and labour shortages.
– Reality check –
But Scott Kirby, chief executive of United Airlines, said despite the trend clearly rising, prices had yet to shoot beyond historical norms.
“In real terms, pricing is back to 2014 levels… and it’s lower than it was essentially every year before” then, he said.
“So… I don’t think we’re going to see demand destruction.”
But Vik Krishnan, a partner at McKinsey & Co, is cautious about how long the current high demand will last.
“Some of the travel that we’re seeing right now is a function of all the stimulus that governments” pumped into economies during the pandemic, boosting citizens’ spare income, he said.
“The number one discretionary income spending is travel and that’s what people are doing.
But “how long that lasts remains to be seen”, he added.
– Climate crisis versus cheap holidays –
Beyond rising costs and fears that government stimulus will fade, airlines face commitments that sit very uneasily alongside each other.
On the one hand, they target carrying a total of 10 billion passengers by 2050, up from 4.5 billion in 2019.
And yet over the same time horizon, they are beholden to achieving “net zero” carbon emissions.
The total cost of transitioning the sector to “net zero” is estimated by the IATA at an eye-watering $1.55 trillion.
“Airlines don’t have the ability to absorb” the cost of that transition, IATA director general Willie Walsh said this week.
To reduce carbon emissions, the industry focus is on sustainable aviation fuels (SAFs), which are currently two to four times more expensive than fossil-based aviation fuel.
Some governments have already imposed SAF quotas, albeit in small quantities, resulting in airlines in turn imposing surcharges.
On Tuesday, the IATA urged governments to provide subsidies to ensure SAF production reaches 30 billion litres in 2030, up from 125 million litres in 2021. It also wants price curbs.
But even if such subsidies are forthcoming, “the transition to net zero will have to be reflected in ticket prices,” Walsh said.
Could that reverse the long-standing global trend of air travel progressively extending beyond the wealthy?
Krishnan believes such “democratisation” will become “harder”.
But he also said “low cost airlines have unleashed a world where people living in Northern Europe took it for granted that they could go on cheap vacations in Southern Europe”.
It would be “very hard for governments to unwind” such entrenched expectations, he warned.
Spain bets on green hydrogen in clean energy push
As Europe seeks to move way from fossil fuels, Spain is racing ahead in developing green hydrogen, aided by a growing wind and solar power complex in efforts to decarbonise its economy.
Spain accounted for 20 percent of the world’s green hydrogen projects in the first quarter, second only to the United States, home to more than half of them, according to Wood Mackenzie consulting firm.
“A lot of countries are interested in green hydrogen, but in Spain the sector has rapidly accelerated” in recent months, said Rafael Cossent, research associate professor in energy economics at Comillas Pontifical University in Madrid.
The sector is still in its infancy, but the war in Ukraine has prompted the European Union to double its production goal for 2030 as part of efforts to reduce its dependence on Russian energy supplies.
“Spain has become a very attractive country for green hydrogen,” EU chief Ursula von der Leyen said during a visit to the country in May. “A shift is happening … to mass-scale competitive hydrogen”.
Green hydrogen is produced by passing an electric current through water to split it between hydrogen and oxygen, a process called electrolysis. It is considered green because the electricity comes from renewable sources of energy that don’t create any harmful emissions.
And while fossil fuels emit harmful greenhouse gases when they burn, hydrogen only emits harmless water vapour.
The technology is part of EU efforts to become climate neutral by 2050.
– ‘Great potential’ –
Green hydrogen could replace coal in heavy industries such as steel mills. It can also be used to make fertiliser and is being considered as a potential fuel for buses, trains and aircraft in the future.
A major drawback for green hydrogen, however, has been the high cost of producing it. It is much cheaper to make “grey” hydrogen, but its production requires using fossil fuels that emit greenhouse gases.
But technological progress and the surge in prices of fossil fuels has made green hydrogen more competitive.
Spain has “great potential” because it has a well-developed renewables sector, with important solar and wind resources, said Javier Brey, president of the Spanish Hydrogen Association (AeH2).
Cossent said that Spain has another advantage in its vast natural gas network and LNG terminals, which could be transformed to export hydrogen.
The government launched last year a 1.5-billion-euro ($1.8-billion) plan to support green hydrogen projects over the next three years, tapping a European Union Covid recovery fund to do so.
Adding private investments, close to nine billion euros will be spent by 2030.
– Future energy hub? –
Spanish energy companies such as Iberdrola, Repsol and Enagas have all launched green hydrogen projects.
Enagas teamed up with global steel giant ArcelorMittal and fertiliser maker Fertiberia for a huge project dubbed HyDeal Espana in northern Asturias region.
The site will have around 15 solar parks that could produce 330,000 tonnes of hydrogen per year by 2030, making it the biggest project of this type in the world, according to the International Renewable Energy Agency.
“This shows the sector has matured,” said Brey of AeH2. “2030 may appear far away, but in reality it’s tomorrow.”
Spain “holds all the cards to become an energy hub,” he added.
But the country still has some obstacles to clear before it can become a leader in the burgeoning sector.
“To win, Spain will have to speed up the deployment of solar and wind farms, as electrolysis consumes a lot of electricity,” Cossent said, adding that projects were stuck in “administrative bottlenecks.”
Spain also lacks energy connectivity with the rest of Europe, but the government has revived a gas pipeline project linking Catalonia and France, which Madrid wants to use to ship hydrogen.
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