1 Britain’s zero-sum game: Neither inflation nor deflation (Larry Elliott in The Guardian) Put the “Britain slides into deflation” headlines on hold for another month. Higher petrol prices meant that the annual inflation rate in the UK in March was zero, the same as it was in February.
There is plenty of evidence that upward pressure on inflation in Britain is non-existent. The trend in inflation is unambiguously downwards. That’s apparent from the government’s preferred measure of the cost of living, the consumer prices index, where the annual inflation rate has fallen from 1.6% to zero since last July.
There is certainly plenty of deinflationary pressure in the UK. What does this mean? It means that the Bank of England is under absolutely no pressure to tighten policy. It means that living standards are rising, because earnings are growing by 2% while prices are not rising at all.
Things could now go in one of two ways. A longer period of low interest rates and rising real incomes could drive faster growth, leading to employers offering higher wages to attract and retain staff. Alternatively, low inflation could make employers even meaner with the pay deals they offer their workers. If annual average earnings start to fall rather than rise, deflation would become a reality.
2 Two billion adults still unbanked (BBC) More than a quarter of people globally still do not have access to banking facilities, a report shows. The World Bank’s Global Findex report said more than half of adults in the world’s poorest areas still have no access to the financial system.
This is despite a global increase of 11% in the last three years of adults owning bank accounts. The increase in account ownership has been driven largely by developing countries and the role of technology. It also found that the gender gap in financial inclusion is not narrowing. The largest gap was in South Asia, where 37% of women have an account, compared with 65% of men.
Mobile money accounts – making and receiving electronic payments via a mobile phone – in Sub-Saharan Africa contributed to the growth in account ownership, which now stands at 62% of adults globally, up from 51% three years ago. World Bank Group president Jim Yong Kim said: “Access to financial services can serve as a bridge out of poverty. We have set a hugely ambitious goal – universal financial access by 2020.”
3 US, China baffled by each other (Thomas L Friedman in NYT/Straits Times) The concept of “one country, two systems” was invented to describe the relationship between Hong Kong and mainland China. But here’s the truth: The American and Chinese economies and futures today are now totally intertwined, so much so that they are the real “one country, two systems” to watch.
Both countries almost take for granted the ties that bind them today: the $600 billion in annual bilateral trade; the 275,000 Chinese studying in the US, and the 25,000 Americans studying in China; the fact that China is America’s largest agricultural market and the largest foreign holder of US debt; and the fact that last year Chinese investment in the US for the first time exceeded US investment in China.
Americans, though, are asking of Mr Xi: “What’s up with you?” Mr Xi has taken more control over the military, economic and political levers of power in China than any leader since Mao Zedong. But to what end – to reform or to stay the same? Foreign textbooks used by universities are being censored, and blogging and searching on China’s main Internet sites have never been more controlled. Don’t even think about using Google there or reading Western newspapers online.
But, at the same time, Mr Xi has begun a huge push for “innovation”, for transforming China’s economy from manufacturing and assembly to more knowledge-intensive work, so this one-child generation will be able to afford to take care of two retiring parents in a country with an inadequate social safety net. Alas, crackdowns don’t tend to produce start-ups.
The combination of cheap energy in America and more flexible, open innovation – where universities and start-ups share brainpower with companies to spin off discoveries; where manufacturers use a new generation of robots and 3D printers that allow more production to go local; and where new products integrate wirelessly connected sensors with new materials to become smarter, faster than ever – is making the US “the next great emerging market”.
Mr Xi seems to be betting that China is big enough and smart enough to curb the Internet and political speech just enough to prevent dissent but not enough to choke off innovation. This is the biggest bet in the world today. And if he’s wrong (and colour me dubious) we’re all going to feel it.