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Price pinch: global economy caught in perfect storm – Reuters

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  • Britain’s chicken king says 20-year cheap food binge over
  • IEA says energy crisis could threaten economic recovery
  • Cold keeps China coal prices high, power crunch continues
  • Biden targets bottlenecks threatening holiday sales

LONDON/TOKYO, Oct 14 (Reuters) – From beef bowls in Tokyo to fried chicken in London, consumers are starting to feel the pinch from the surge in costs coursing through the global economy.

The rebound as coronavirus restrictions are eased has exposed supply chain shortages, with firms scrambling for workers, ships and even fuel to power factories, threatening the fledgling economic recovery.

Britain’s biggest chicken producer said that the country’s 20-year cheap food binge is ending and food price inflation could hit double digits.

“The days when you could feed a family of four with a 3 pound ($4) chicken are coming to an end,” Ranjit Singh Boparan, owner of the 2 Sisters Group, said.

Shortages of warehouse workers, truckers and butchers as the world’s fifth-largest economy deals with Brexit as well as COVID is exacerbating strains being felt globally by international business.

IKEA is leasing more ships, buying containers and re-routing goods as the world’s largest furniture brand seeks to mitigate a “perfect storm” of disruptions.

Jon Abrahamsson, chief executive at Inter IKEA, told Reuters he expects the crisis to extend into 2022, with the biggest challenge getting goods out of China, where around a quarter of IKEA products are made.

IKEA said stores in North America have been hardest hit by product shortages, followed by Europe.

In the United States, President Joe Biden on Wednesday urged the private sector to help ease blockages that are threatening to disrupt the U.S. holiday season.

Biden said the Port of Los Angeles would join the Port of Long Beach in working round-the-clock to unload about 500,000 containers, while Walmart (WMT.N), Target (TGT.N) and other big retailers would expand overnight operations to help out.

Even in Japan, where weak growth has meant that prices of many things – as well as wages – have not risen much in decades, consumers and businesses are facing a price shock for basics such as coffee and beef bowls.

Japan’s core consumer inflation stopped falling in August, snapping a 12-month deflationary spell. Economists and policymakers expect to see recent price rises reflected in data over the coming months.

With central bankers on high alert and inflation in Spain, Ireland and Sweden hitting 13-year highs, European Central Bank President Christine Lagarde repeated that the upswing in Europe is seen as temporary and said there were no signs of it becoming embedded in wages.

“The impact of these factors should fade out … in the course of next year, dampening annual inflation,” Lagarde said.

Euro zone inflation is expected to hit 4% before the end of the year, twice the ECB’s target, and a growing number of economists see it remaining above target throughout 2022.

COLD FRONT

Dwindling power supplies suggest a bleak winter outlook in some parts of the world.

As northern China chills, coal prices held near record highs, with power plants stocking up to ease an energy crunch that sent factory gate inflation in the world’s second-largest economy to an at-least 25 year high in September.

Meanwhile, Coal India (COAL.NS), the world’s biggest coal miner, said it had temporarily stopped supplying non-power users as India battles one of its worst ever power supply deficits.

China’s power crisis, caused by shortages of coal, high fuel prices and booming post-pandemic industrial demand has halted production, including at factories supplying big brands such as Apple (AAPL.O).

Weak demand is capping consumer inflation, however, forcing policymakers to walk a tightrope between supporting the economy and further stoking producer prices.

There are few signs of any energy cost reprieve, with Brent crude oil futures above $84 a barrel on expectations that soaring natural gas prices will drive a switch to oil to meet winter heating needs.

The International Energy Agency said the crunch could boost oil demand by half a million barrels per day (bpd).

“Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery,” the IEA said in its monthly oil report.

Top economic institutes cut their joint forecast for 2021 growth in Germany, Europe’s largest economy, to 2.4% from 3.7% as supply bottlenecks hamper output.

German government and industry sources told Reuters on Thursday that the government plans to ease the pressure on consumers from rising energy bills by cutting the surcharge which helps fund renewable energy investment by 43% next year.

And in Singapore two energy providers, including one of the largest independents, are exiting the market while at least three others have stopped accepting new clients due to rocketing wholesale energy prices, company sources told Reuters.

Meanwhile, the White House has been speaking with U.S. oil and gas producers about helping to bring down fuel costs, two sources familiar with the matter said.

The average U.S. retail cost of a gallon of gasoline is at a seven-year high, and winter fuel costs are forecast to surge.

CHIPS DOWN

Dutch navigation and digital mapping company TomTom (TOM2.AS) warned that supply chain problems in the auto sector could last well into 2022.

“Collectively we have underestimated how big the supply chain issues, and especially for semiconductor shortages, have been or have become”, TomTom Chief Financial Officer Taco Titulaer told Reuters.

A global semiconductor chip shortage has forced carmakers still recovering from coronavirus to halt production again.

Italian-American vehicle maker CNH Industrial (CNHI.MI) said on Wednesday it will temporarily shut several European agricultural, commercial vehicle and powertrain manufacturing plants because of problems procuring components.

Soaring demand is, however, proving a boon for some.

Taiwan’s TSMC (2330.TW), the world’s largest contract chipmaker, reported a near 14% jump in third quarter profit.

TSMC and Taiwan have become central to efforts to resolve the global chip shortage, which has also hit manufacturers of smartphones, laptops and consumer appliances.

Some companies, such as Toyota Motor Corp (7203.T) are intensifying efforts to restart production. The Japanese carmaker hopes to do so in December with a rebound in shipments from pandemic-hit suppliers, three sources told Reuters.

Additional reporting by Muyu Xu, Shivani Singh, David Stanway, Noah Browning, James Davey, Liangping Gao, Stella Qiu and Ryan Woo; Writing by Alexander Smith; Editing by Carmel Crimmins, Catherine Evans, Elaine Hardcastle

Our Standards: The Thomson Reuters Trust Principles.

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Oil rallies as U.S. crude stocks decline in tight market

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Oil prices rallied on Wednesday after U.S. Crude Inventories at the nation’s largest storage site hit their lowest level in three years and nationwide fuel stocks fell sharply, a signal of rising demand.

Brent crude futures settled at $85.82 a barrel, a gain of 0.9% or 74 cents and the highest since October 2018.

November U.S. West Texas Intermediate (WTI) crude, which expires on Wednesday, settled at $83.87, up 91 cents, or 1.1%. The more active WTI contract for December settled up 98 cents to $83.42 a barrel.

 Crude prices have risen as supply has tightened, with the Organization of the Petroleum Exporting Countries maintaining a slow increase in supply rather than intervening to add more barrels to the market, and as U.S. demand has ramped up.

Globally, refiners have been boosting output thanks to high margins, one that can only be restrained by maintenance. U.S. refining capacity use dropped in the most recent week, but analysts noted that supply may continue to tighten if U.S. refiners also pick up processing again.

“Stronger demand and concerns about a drop in inventories when refiners were already running a low rate during maintenance season is making people concerned about what will happen when refiners have to ramp up production to meet what is very strong demand for gasoline and distillate,” said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.

U.S. crude stocks fell by 431,000 barrels in the most recent week, the U.S. Energy Information Administration said, against expectations for an increase, and gasoline stocks plunged by more than 5 million barrels as refiners cut processing due to maintenance. [EIA/S]

U.S. stocks at the Cushing, Oklahoma delivery hub hit their lowest level since October 2018. Gasoline stocks are now at their lowest since November 2019, the EIA said, while distillate stocks fell to levels not seen since early 2020.

Oil prices have also been swept up in surging natural gas and coal prices worldwide in anticipation that power generators may switch to oil to provide electricity.

Saudi Arabia’s minister of energy said users switching from gas to oil could account for demand of 500,000-600,000 barrels per day, depending on winter weather and prices of other sources of energy.

(Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Andrea Ricci, Kirsten Donovan and David Gregorio)

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Vietnam PM promises economy will rebound from COVID-19 hit | Saltwire – SaltWire Network

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HANOI (Reuters) – Vietnam’s exports are likely to rise 10.7% in 2021, with annual inflation expected below 4%, the prime minister said on Wednesday, promising lawmakers that economic revival lay ahead.

Pham Minh Chinh told the national assembly that Vietnam, consistently one of Asia’s fastest-growing economies, had been badly hit by the coronavirus, which disrupted its supply chains and hit workers in key industries.

Vietnam’s gross domestic product (GDP) contracted 6.17% in the third quarter of 2021 from a year earlier as the containment measures hit, the sharpest quarterly decline on record.

Chinh said he expected GDP to expand 6.0% to 6.5% next year, with the government aiming to cap inflation at 4%.

“Realising 2022 targets is a heavy task, but we definitely will revive our economy,” he said, despite the pandemic having put macroeconomic stability at risk.

“Inflation is facing upward risks and there have been disruptions in the supply chains … workers’ lives have been badly hit.”

Although Vietnam had largely reined in COVID-19 until May, a fast-spreading outbreak of the Delta variant in its economic hub of Ho Chi Minh City led to wide curbs on movement and commerce, hitting key manufacturing provinces nearby.

This month, the government said Vietnam would miss its garment exports target this year, by $5 billion in the worst case, hit by curbs and a shortage of workers.

It expected $34 billion of textile exports, shy of the targeted $39 billion, and a shortage of 35% to 37% of factory workers by year-end, it said.

Ho Chi Minh City has suffered a mass exodus of workers since lockdowns eased last month, on worries they would get stuck again if there was another wave of infections.

(Writing by Martin Petty; Editing by Kim Coghill)

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Opinion | Evergrande Isn’t China’s Only Economic Worry – The New York Times

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Crushed by $300 billion in debt, Evergrande, one of China’s biggest property developers, is sliding toward bankruptcy. This has prompted fears of a wider property crash or even a financial crisis.

But this is hardly the only crisis besieging the government of Xi Jinping. An unexpected electricity shortage threatens to slow down manufacturing. And for the past year, the government has waged a fierce campaign to regulate China’s vibrant internet companies, spurring hundreds of billions of dollars in investor losses.

The common feature of these crises: All were triggered by government policies. In the eyes of Beijing, these policies are meant to fix deep structural problems in the economy and lay more solid foundations for future growth. To many outsiders, they represent a dispiriting retreat from the market-oriented reforms of the past and signal the end of China’s long economic boom. But forecasts of China’s doom are most likely mistaken, as they have so often been.

True, in the latest quarter, economic growth slowed to a crawl, growing by just 0.2 percent compared with the previous quarter. The next several months will be rockier still. Slower growth in China is unwelcome news for a global economy struggling to regain its footing after the disruptions of the Covid-19 pandemic. But over the next few years, China is likely to regain momentum — in part because of the hard work it is doing now.

The biggest immediate worry is the collapse of Evergrande. Like most Chinese property developers, it relies on two key funding sources: deposits paid by home buyers before construction and huge amounts of debt.

Evergrande’s woes result from a government campaign begun last year to force property developers to reduce their liabilities. It is the latest move in a five-year effort to bring the country’s debt under control. According to the Bank for International Settlements, China’s gross debt level, at 290 percent of G.D.P., has doubled since 2008. While that level is comparable with that of rich countries with well-developed financial systems, it is high for a middle-income country. China’s leaders know that to avoid a financial crisis or avoid a repeat of Japan’s stagnation of the 1990s — the aftermath of a big debt-fueled property bubble — growth in the future must be far less reliant on debt than it has been.

Aly Song/Reuters

The problem is that by attacking debt in the property sector, regulators risk shutting off a powerful engine that directly or indirectly affects as much as a quarter of China’s economic growth. Problems are spreading beyond Evergrande. Other developers are having trouble repaying their debts. And the sales and construction of new housing are both falling.

The drive to cut real estate debt will almost certainly depress China’s growth in the coming quarters. But it will not lead to a “Lehman moment,” when the implosion of a single heavily indebted company triggers a broader financial or economic collapse: The country has an enormous pool of savings. And the government is now adept at managing meltdowns of major companies, including the private conglomerates HNA and Anbang, Baoshang Bank and Huarong, a huge state-owned asset manager.

The larger question is whether China can maintain a dynamic economy when its government, under Mr. Xi, seems increasingly intent on meddling in the market. The answer: Despite a desire for more state discipline, China has not rejected markets — dynamism will continue.

Some of this state meddling is prudent. The property crackdown is part of a serious drive to cure the economy’s addiction to debt. Similarly, the power shortages that have plagued much of industrial China are due largely to efforts to slash the country’s reliance on coal. China has said that its carbon emissions should peak by 2030 and then decline, with a goal of reaching carbon neutrality by 2060.

One response to the energy shortage has been a long-overdue deregulation of electricity prices. This has allowed generators to pass on some of the impact of higher coal prices to end users. So it is not true that Mr. Xi’s government is implacably anti-market. Beijing, as it has for decades, will continue relying on a combination of state guidance and market forces: The state sets the direction for investment, with day-to-day outcomes dictated by the market.

A more serious concern is the yearlong offensive against privately owned big tech companies, notably e-commerce and the financial technology giant Alibaba, and the ride-hailing company Didi. It’s unclear whether China can ever become a true leader in innovation if it insists on squashing its most successful entrepreneurial businesses.

Yet even here, the story is not black-and-white. The internet crackdown is not really about crushing private enterprise: Private companies in many sectors, including tech hardware, are doing just fine. Rather, the crackdown addresses — in a very authoritarian way — the same anxieties about big tech that governments around the world are grappling with: unaccountable power, monopolistic practices, shoddy consumer protection and the tendency of a tech-heavy economy to drive income inequality.

One final worry is that these moves toward greater state discipline are driven not by economic motives but by Mr. Xi’s desire to reinforce his power, ahead of a Communist Party conference in late 2022 where he expects to gain a third term as the country’s leader. In the long run there is a risk that overly centralized power could degrade the government’s ability to manage the economy. But Mr. Xi also recognizes that his power will not be worth much unless the economy keeps growing.

China will never run its economy in a way that pleases free-market purists. But it has come up with a mixed model that works. And despite the stresses of the moment, it will keep on working.

Arthur Kroeber is a partner and the head of research at Gavekal Dragonomics, a China-focused economic research firm.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.

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