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Price crunch: global economy in a perfect storm

  • Britain’s Chicken King says 20 years of cheap food are over
  • According to the IEA, the energy crisis could threaten economic recovery
  • Cold keeps China’s coal prices high, electricity shortages continue
  • Biden targets shortages that threaten Christmas sales

LONDON / TOKYO, Oct 14 (Reuters) – From beef bowls in Tokyo to chicken fillet rolls in London, consumers are feeling the strain of rising costs that are overwhelming the global economy.

The recovery in economic activity from coronavirus restrictions has exposed bottlenecks across the supply chain as companies scramble to find workers, ships and even fuel for factories, threatening an emerging recovery.

Britain’s largest chicken producer warned that the country’s 20 year old food cravings attack was coming to an end and that food price inflation could hit double digits due to the flood of costs.

In the face of Brexit and COVID, the world’s fifth largest economy is facing an acute shortage of warehouse workers, truckers and butchers, exacerbating global supply chain pressures.

“The days of feeding a family of four on a 3-pound chicken ($ 4) are coming to an end,” Ranjit Singh Boparan, owner of the 2 Sisters Group, said in a statement Thursday.

Even in Japan, where weak growth has meant prices of many things – including wages – not rising sharply in decades, consumers and businesses are facing a price shock for staples like coffee and beef bowls.

Japan’s core consumer inflation didn’t stop falling until August, breaking a 12-month deflationary period. Economists and policymakers expect the recent price hikes to be reflected in official data in the coming months.

In the United States, President Joe Biden on Wednesday called on the private sector to help loosen supply chain blockades that threaten to disrupt the US holiday season.

Biden said the Port of Los Angeles will join the Port of Long Beach to expand round-the-clock operations to offload an estimated 500,000 containers waiting offshore while Walmart (WMT.N ), Target (TGT.N) and other large retailers would expand their night-time operations to meet delivery needs.

COLD FRONT

With winter approaching in some parts of the world, the outlook looks bleak as power supplies dwindle.

As the cold weather swept across northern China, coal prices stayed near record highs and power plants filled with fuel to alleviate an energy crisis that fueled unprecedented inflation at the factory gates in the world’s second largest economy.

China’s widening power crisis, caused by coal shortages, high fuel prices, and booming industrial demand after the pandemic, has halted production at numerous factories, including many that supply major global brands such as Apple Inc (AAPL.O).

Rising energy prices helped push China’s factory gate inflation to its highest level in at least 25 years in September, with PPI up 10.7% year-over-year, data showed.

But weak demand limited consumer inflation, forcing policymakers to walk a tightrope between supporting the economy and further stimulating producer prices.

So far, there have been few signs of a recovery in energy costs as oil prices rise again on Thursday amid a stronger-than-expected decline in US gasoline and distillate inventories.

The surge was also supported by expectations that soaring natural gas prices will prompt a switch to oil to meet heating needs in the nearer winter, with Brent crude oil futures hitting $ 83.85 a barrel around 0647 GMT.

The International Energy Agency (IEA) said the energy crisis is expected to boost oil demand by half a million barrels per day (bpd), fuel inflation and slow the global recovery from the COVID-19 pandemic.

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

In Germany, the country’s leading economic institutes have lowered their joint growth forecast for 2021 in Europe’s largest economy from 3.7% to 2.4%, as supply bottlenecks hamper production, which a Reuters story confirms.

In response to the growing energy price crisis, the White House has been talking to U.S. oil and gas producers for the past few days about cutting rising fuel costs, two sources familiar with the matter told Reuters.

In the United States, the average retail cost of a gallon of gas is at a seven-year high, and fuel costs are expected to rise in winter, according to the US Department of Energy. Oil and gas production remains below the national high of 2019.

CHIPS STILL DOWN

Dutch navigation and digital map company TomTom (TOM2.AS) warned that supply chain problems in the automotive sector could persist into the first half of 2022 after reporting a stronger-than-expected quarterly core loss.

Auto manufacturing has been plagued by a global semiconductor chip shortage that has forced automakers, still recovering from the disruption from the coronavirus, to halt production again.

“We have taken together underestimated how big the supply chain problems and especially the semiconductor shortages were or have become,” Taco Titulaer, TomTom’s chief financial officer, told Reuters on Thursday.

The increasing demand is a blessing for some companies. Taiwan’s TSMC (2330.TW), the world’s largest contract chip maker, reported a profit jump of nearly 14% in the third quarter.

TSMC, and Taiwan in general, have also played a pivotal role in efforts to address the global pandemic chip shortage that has hit smartphone, laptop, and consumer device makers and automakers.

Some companies like Toyota Motor Corp (7203.T) are stepping up efforts to resume production, with the Japanese automaker hoping to do so in December with a rebound in supplies from pandemic-stricken suppliers, three sources told Reuters.

Toyota has asked suppliers to make up for the loss of production so they can build an additional 97,000 vehicles between December and the end of March, with some considering extra weekend shifts, the sources said.

In the UK, discounter Poundland’s owner warned that pressure on global supply chains has increased as the availability of raw materials decreases, leading to commodity inflation.

Pepco Group said this was compounded by limited container capacity, which increased shipping rates significantly from last quarter.

But in some rare good news for consumers, Pepco said most of the higher costs are not passed on.

Additional coverage from Muyu Xu, Shivani Singh, David Stanway, Noah Browning, James Davey, Liangping Gao, Stella Qiu, and Ryan Woo; Letter from Alexander Smith; Edited by Carmel Crimmins

Our Standards: The Thomson Reuters Trust Principles.

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