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This is an audio transcript of the FT News Briefing podcast episode: ‘Falling inflation in Europe

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Marc Filippino
Good morning from the Financial Times. Today is Thursday, January 5th, and this is your FT News Briefing.

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It looks like inflation in Europe is really starting to cool. It has been in the US, too, but not so much that the Federal Reserve should take its foot off the gas. So says a top official at the International Monetary Fund. Plus, the World Health Organization is accusing China of undercounting its Covid deaths.

Ryan McMorrow
So it’s just totally unrealistic numbers that the government is putting out, and nobody here really believes them.

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

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The deputy managing director at the IMF says the Fed should not declare victory against inflation just yet. Gita Gopinath told the FT she thinks the Fed shouldn’t let up on tightening interest rates this year. She says there are still threats like services inflation. You can thank a surprisingly robust US labour market for that. And it doesn’t seem like the Fed has any intentions of letting up. Minutes for the central bank’s December meeting came out yesterday. They showed the Fed still plans to squeeze the economy and back more rate rises this year to bring down prices.

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Inflation in Europe is looking encouraging. New data out yesterday shows that in France last year the rate fell to 6.7 per cent. Spain and Germany have also seen their inflation rate slide. And later this week, we’re expecting data that shows inflation for the entire eurozone has fallen to single digits. Here to explain what’s going on is the FT’s Martin Arnold. Hey, Martin.

Martin Arnold
Hello, Marc.

Marc Filippino
OK, so these inflation numbers, Martin, they kind of came as a surprise. So I guess the big question is why are we seeing inflation fall across Europe?

Martin Arnold
The story is almost entirely about energy. And we are seeing that energy prices have come down in recent months, and that’s been partly due to milder than expected weather that we’ve had here in Europe that has allowed people and businesses to reduce their energy consumption and that has, has cooled price pressures on energy prices. There’s also been some support from governments. They’ve capped prices and provided various aid to reduce the impact of energy costs. And that’s all of those things together have, have, have brought energy prices down. And that’s had an overall cooling effect on, on inflation.

Marc Filippino
So do we have a sense of how the European Central Bank is gonna respond to this surprising inflation data? What’s the plan here?

Martin Arnold
So I don’t think they’re going to stop interest rate rises just yet. Inflation, as you mentioned, is expected to fall for the, for the overall eurozone, and it’s expected to fall back below 10 per cent in December when those figures are released on Friday. But that’s still a long way above the ECB’s 2 per cent target. And also the fall in inflation, which is expected to continue throughout 2023, that’s being driven by energy prices coming down. And what the ECB worries about is that the underlying price pressures so far for prices of other goods and services not energy and not food, which are typically more volatile, but these underlying price pressures that we, we all pay in, in everyday life, those, those are likely to stay higher for longer. And it wants to see evidence that they’re coming back down towards its 2 per cent target as well. So most economists expect the ECB to keep raising interest rates at least a couple more times this year in early February and again in March.

Marc Filippino
Martin Arnold is the FT’s Frankfurt bureau chief. Thank you, Martin.

Martin Arnold
You’re welcome. Good to talk to you.

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Marc Filippino
Yesterday, the World Health Organization accused China of downplaying the country’s coronavirus outbreak. The WHO says that China is under representing how many people have died because of Covid. The FT’s Ryan McMorrow is in Beijing and says a slew of high profile deaths like artists and academics has highlighted the disparity between what’s been reported and reality.

Ryan McMorrow
There’s just been a lot of obituaries posted online and on social media in recent days as the Covid crisis here has gotten worse. So it’s just kind of attracted a lot of attention domestically. I mean, a lot of people are just seeing all these obituaries and using it to talk about the Covid situation and how the country was unprepared. Some people are comparing, like for the Chinese academics, comparing how many former professors died in the same month last year. So there’s just like a lot of comparisons being drawn. And then also comparing it to what the government is releasing on the actual Covid deaths, which is I think it’s now up to 25 deaths. It was like three or 400mn people have gotten Covid so it’s just totally unrealistic numbers that the government is putting out, and nobody here really believes that.

Marc Filippino
How does this affect people’s confidence in the government’s Covid strategy?

Ryan McMorrow
There’s definitely a little bit of a crisis of confidence in the government, starting from around a month ago when they just dropped all Covid restrictions at the same time. Beijing, the capital where I am, was one of the first cities to really just take off with infections. In that first week, it was a lot of people just having fevers, and it wasn’t like the really sick people. And then around Christmas time is when the hospitals just started to get overwhelmed with patients and not have any room. And the ERs just ran out of beds. The ICU ran out of beds. They ran out of oxygen in some places. And so once that started happening, I think there’s just been a pretty widespread feeling that the government totally bungled this reopening and really didn’t prepare at all.

Marc Filippino
Is there any sense that the crisis may have reached its peak.

Ryan McMorrow
At least in Beijing and in some other large cities, it seems like we’re definitely past the peak of infections, and people are kind of getting back to normal life. But the peak in deaths is usually around two weeks after the peak of infections, that’s what the scientists say. So even as the rest of us who’ve already recovered and are getting back to our normal lives, the hospitals are still overwhelmed. But at least in Beijing, that should slowly start to get better. But for instance in Shanghai, the situation in hospitals there seems pretty bad still. And these are two of the cities that are best prepared for a Covid wave, with just the best healthcare resources in the country. So it’s only going to be worse in most of the country.

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

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Before we go, activity in London’s offices and hotels isn’t recovering as quickly as many other European cities. That’s according to data compiled by a Finnish elevator company (Elevator dings). Now, I didn’t know this, but elevator journeys are used as a proxy of activity levels in commercial buildings. London recorded the lowest increase in elevator usage in 2022 compared to cities like Brussels, Berlin and Paris. Amsterdam had the largest jump. The growth in London’s office and a hotel activity might have been the lowest, but the city was still one of the busiest overall.

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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.


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