Aurelia Butler

From mainFT:Prices for olive oil are surging further in to record-breaking territory after an extended period of unusually dry weather in southern Europe damaged crops.European prices first moved above €4 per kilogramme in September but have now shot up to more than €7 per kg owing to soaring temperatures and a lack of rainfall in Spain, the world’s largest producer, as well as in Italy and Portugal.The piece’s co-author, former Alphavillain George Steer, made the mistake of mentioning this piece to us yesterday, his innocent query of whether the UK tracks olive oil prices spurring us to spend some time down a rabbit hole.Naturally the article focuses on the fascinating global picture. This article will not.As mentioned in our piece about Beyoncé last week, the UK’s Office for National Statistics is perhaps inexplicably opaque about the data it gathers. Happily, sometimes it is fairly transparent, much like (filtered) olive oil.The ONS tracks the price of a 500ml bottle of olive oil as part of its standard basket of goods used to measure inflation. It represents about 1 point of the 950ish point CPIH basket.In its latest consumer price index report, it found the average cost of such oil was £6.16:

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It’s a big pickup: olive oil price were 47 per cent higher than a year earlier, as part of a substantial rise that kicked off around the time Russia invaded Ukraine — knocking out the world’s biggest supplier of sunflower oil and generally mussing up the global market for vegetable oils. Twelve-month CPIH inflation in food and non-alcoholic beverages over the same period was 18.4 per cent.Interestingly, this is one of the areas where the ONS fully divulges the different price quotes its agents observed for a product.In May, the ONS observed prices for 244 500ml bottles of olive oil, item code 211408, across 66 different shop types. The ONS uses a combination of physical observation of data — a 2018 document says:A third party company, Kantar TNS, are currently contracted to collect approximately 100,000 prices for around 580 items from a variety of retail stores in around 150 locations across the UK each month.— and data scraped from the web.Olive oil’s a complex product category. Eight different classifications exist:extra-virgin olive oil,virgin olive oil,virgin lampante olive oil,refined olive oil,olive oil composed of refined olive oil and virgin olive oils,olive pomace oil,crude olive-pomace oil,refined olive pomace oil.Most readers will be familiar at least with the basic distinction between regular olive oil (for cooking) and extra-virgin olive oil (for drizzling/dressing). It is not clear from the ONS how fussy they are about the quality of olive oil observed.Regardless, here’s the distribution of prices that they found in May 2023, versus January 2022. We’ve simplified this to include instances where prices has recovered from a sale or bore other comments as being “standard price”. Comparable products mean a new product came on sale that was “similar to the previous product”. Sale price means “sale price or special offer”:

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The shift in the overall distribution is obviously the key trend: — January 2022’s average price is only moderately above May 2023’s lowest price— The average price rose 65.1 per cent between the two periodsThe moves at either end are also interesting:— the price of the cheapest olive oil the ONS found rose from £1.89 to £2.75, which is inflation of 45.5pc. — the most expensive rose from £8.35 to £10.99, inflation of 31.6 per centIt’s worth caveating those figures slightly, by noting that January 2022 had a mild outlier at the most expensive end, while May 2023 has one at the bottom. We’d propose looking at the “cluster” of price near each extremity as a better indicator of the widely-available extremes — we’re defining this is the lowest/highest price that was observed more than once.— Inflation from the lowest January 2022 cluster to that lower-end May 2023 cluster in May was 78.9 per cent— at the highest end it was it was 36.3 per centThis first chart here shows how prices have changed at either end. It’s worth noting there were severe stock issues late last year, after which point prices sprung up in January 2023:

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And here are those figures as a percentage change:

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There was some discourse and some data last year about inflation being felt more strongly by people with the least spending power, because they don’t have the option of switching to a cheaper product. The ONS’s conclusion at the time was no.Olive oil is a definite exception. Something to mull on as you drizzle over that caprese salad. More

The UK economy contracted by 0.1 per cent in May, less than expected, but economists warned that recent interest rate rises would hit growth in the second half of the year.An extra bank holiday to mark the King’s coronation contributed to the fall in UK gross domestic product between April and May, Office for National Statistics data showed. Economists polled by Reuters had expected a 0.3 per cent drop.But Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the 0.1 per cent fall, which followed a slight rise in May, confirmed “that the economy was floundering even before the impact of recent interest rate rises are fully felt”.Sterling rose 0.6 per cent against the dollar on Thursday, hitting $1.3063 — its highest level since April 2022 — as traders bet on several more interest rate rises from the Bank of England, but just one more from the Federal Reserve.The Bank of England has increased its policy rate from a historic low of 0.1 per cent in November 2021 to 5 per cent today, with markets anticipating a further rise to 6.25 per cent by the end of the year. Swaps markets are pricing in a 50 per cent chance of the Bank of England raising rates by 0.5 percentage points to 5.5 per cent in August.Thiru added that, while GDP could rebound in June, “the significant squeeze on activity from high inflation, stealth tax hikes and rising interest rates” posed problems for Prime Minister Rishi Sunak’s pledge to deliver economic growth this year.

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The UK economy has been largely flat for the past year as high inflation and rising borrowing costs weigh on household finances and business activity. In May, output was only 0.2 per cent above the level in February 2020, at the start of the coronavirus pandemic.Thursday’s ONS data showed that output in the three months to May was unchanged compared with the previous three-month period — marginally better than a 0.1 per cent contraction forecast by analysts.Paul Dales, economist at Capital Economics, said he expected the economy had grown marginally during the three months to June.However, he forecast that the surge in mortgage rates due to the BoE’s tightening would “contribute to GDP falling in Q3 and a mild recession beginning”. This week, the average rate on a two-year fixed mortgage hit 6.6 per cent, the highest level since 2008, and the BoE said monthly payments would rise by £500 or more for 1mn households by the end of 2026.Dales said he did not expect that the BoE would be deterred from further interest rate rises to bring down inflation, which at 8.7 per cent for the year to May is much higher than in the US or the eurozone.Official data this week also showed that UK wages grew faster than expected in the three months to May.Commenting on the ONS data, chancellor Jeremy Hunt said: “While an extra bank holiday had an impact on growth in May, high inflation remains a drag anchor on economic growth.”Industrial production output fell 0.6 per cent during the month and was the largest contributor to the overall fall in GDP. Output fell in eight of 13 manufacturing sectors, with wood and printing among the largest negative contributors.Construction fell 0.2 per cent in May, the third consecutive drop, with the ONS indicating a slowdown in private housing linked to customers’ economic worries as mortgage rates rise.

Darren Morgan, ONS director of economic statistics, said the extra bank holiday in May for the coronation had affected growth. “GDP fell slightly as manufacturing, energy generation and construction all fell back with some industries impacted by one fewer working day than normal.”He added that despite the coronation bank holiday, sales had fallen at pubs and bars after a strong April while employment agencies experienced another poor month.Services were flat overall, with less impact from strikes than in the previous month. After widespread strikes by doctors in April, output in the health sector rebounded 1.1 per cent in May, while continued industrial action in transport contributed to a subdued 0.1 per cent rise. More

The survey on nine “superstar” cities — Beijing, Houston, London, New York City, Paris, Munich, San Francisco, Shanghai and Tokyo — showed that demand for office space would be 13% lower in 2030 than it was in pre-pandemic 2019.”Superstar” cities are locations with a disproportionate share of the world’s urban gross domestic product (GDP) and GDP growth.The survey said employees continued to spend far less time working at the office compared to pre-pandemic times. Remote working seemed to have contributed to migration away from prime cities, partly influenced by complete work-from-home models and cheaper housing availability in suburban areas.In the aftermath of the COVID-19 pandemic, tenants have reduced their office real estate and several corporates have switched to a permanent hybrid work model.”The decline in demand has prompted tenants… to negotiate shorter leases from owners,” said the McKinsey report, adding that short-term leases might make it more difficult for property owners to secure financing.Besides rising vacancy rates, commercial property firms globally are battling steep declines in valuation of their properties as a surge in borrowing costs amid high interest rate environment forces investors to look at more profitable avenues.Similarly, the impact could be stronger if troubled financial institutions decide to more quickly reduce the value of property they finance or own, according to the survey.The McKinsey report comes at a time when world economies are navigating an array of macroeconomic challenges such as elevated inflation, high interest rate levels and mounting recession fears. More

WASHINGTON (Reuters) – The International Monetary Fund said on Thursday that first quarter global growth slightly outpaced projections in its April forecasts, but data since then has shown a mixed picture, with “pockets of resilience” alongside signs of slowing momentum.The IMF said in a briefing note for a G20 finance leaders meeting in India next week that manufacturing is showing weakness across G20 economies and global trade remains weak, but the demand for services is strong, particularly where tourism is recovering.The IMF did not indicate any changes to its April 2023 global GDP growth forecast of 2.8% – down from 3.4% in 2022 – but said that risks were “mostly” tilted to the downside. These include the potential for Russia’s war in Ukraine to intensify, stubborn inflation and more financial sector stress that could disrupt markets.But the Fund said that inflation “seems to have peaked” in 2022, and core inflation, while also easing, remains above targets in most G20 countries.Reduced supply chain disruptions and lower goods demand means likely disinflationary pressures from goods, the IMF said. “However, services inflation – which is now the major driver of core inflation – is expected to take longer to decline,” the IMF said.Strong consumer demand for services, buoyed by demand, buoyed by strong labor markets and the post-pandemic shift in spending from goods to services, is likely to sustain these price pressures, the IMF said.”On the upside, a softer-than-projected landing for output and labor markets is possible, with activity remaining resilient, inflation falling faster than anticipated and labor markets cooling through fewer vacancies rather than more unemployment,” the Fund added.INFLATION FIGHTG20 policymakers should continue their fight against inflation, tightening monetary policy in many economies and maintaining real rates above neutral until “tangible signs of inflation returning to target emerge.”But the IMF said policymakers will need to be vigilant for signs of financial sector stress, especially those brought about by interest rate risk and property sector stresses, and may need to deploy financial policy tools to contain them. It called for “granular stress tests” for financial firms.G20 countries also need to tighten fiscal policy to ensure debt sustainability, create fiscal space and to help support disinflation by reducing aggregate demand, the Fund said.IMF Managing Director Kristalina Georgieva said in an accompanying blog post that her “overriding priority” was to complete a review of the IMF’s quota resources that would increase their overall size, “with mindfulness of how the global economy has evolved”, a signal that major emerging markets like China should see increased shareholding. The Fund last adjusted its shareholding in 2010, and is working to complete a review by Dec. 15. SUBSIDY ADVICE The IMF also warned G20 countries about the dangers that industrial policy can have in creating distortions in trade and investment, citing China’s industrial subsidies and those for green energy investment in the United States and the European Union.”Such policies create the risk of fragmentation of production and of triggering retaliatory responses by trading partners,” the IMF said. “These could also hamper technological diffusion, both between major technological hubs and to developing economies.Instead, it called for G20 countries to “develop common perspectives on the appropriate use of subsidies,” adding that this can help improve outdated World Trade Organization rules and help avoid a fragmented global economy. More

TORONTO (Reuters) – The Bank of Canada’s interest rate hike on Wednesday and prospects of more increases heighten risks to mortgage lenders as homeowners are likely stay in debt longer as they struggle to make higher payments or pay even the interest portion of their home loans, investors and analysts say.After urging lenders to tackle the risks from a sharp rise in borrowing costs, Canada’s main banking regulator, Office of the Superintendent of Financial Institutions (OSFI), on Tuesday proposed tougher capital rules for lenders to prevent consumers from defaulting or entering negative amortization.Negative amortization occurs when variable home loan customers’ monthly repayments are not enough to cover the interest component of home loans. Which means the excess amount gets added to the outstanding loan, thereby lengthening the repayment period.”All of that is a realization that there is stress in the system,” said Greg Taylor, Chief Investment Officer of Purpose Investments.”There’s definitely more risk because anytime you hike you never know when it’s going to be the straw that breaks the camel’s back.”Unlike the U.S., where home buyers can snag a 30-year mortgage, Canadian borrowers have to renew their mortgages every five years at the prevailing interest rates.On Wednesday, the central bank pushed back its expectations for getting inflation to its 2% target by six months to mid-2025, in a sign interest rates are likely to stay higher for longer.The cost of a floating rate mortgage has now increased by about 70% from the loans since October 2021, when interest rates hit at a record low, prompting more than half of home buyers took out floating rate loans. Analysts estimate some C$331 billion ($251 billion) in mortgages coming up for renewal in 2024 and C$352 the following year, which underscores the enormity of refinancing challenge.To be sure, thanks to the strong employment and being stress tested at a higher rate, consumers are largely able to make their payments for now. MORTGAGE DELINQUENCIES LOWLatest data released during the quarterly earnings showed mortgage delinquencies for all banks were low.Of the big six banks in Canada, Bank of Nova Scotia and National Bank of Canada (OTC:NTIOF) do not offer mortgage extension, meaning the payment owed by the consumer goes up for each hike the BoC announces.The two banks will be key for any early signs of stress as borrowing costs rise further. Analysts also warn the two banks risk losing mortgage market share due as their products offer less flexibility.Scotiabank said it has been working with customers individually in the current rising rate environment. National Bank did not offer an immediate comment.Bank of Montreal, CIBC and TD Bank each allow for negative amortization as rates rise.More than three-quarters of people with variable-rate mortgages had already hit their trigger rate, according to Desjardins.Royal Bank of Canada, the country’s biggest bank, does not offer negative amortization but its variable rate mortgage customers have already seen an increase in payments by as much as 40% to cover higher interest rates, KBW analyst Mike Rizvanovic said. While the other three banks have fully insulated their borrowers until the mortgage is renewed.RBC did not offer an immediate comment.Canada’s banking regulator’s latest proposal to increase capital requirements puts the most stress on CIBC depending on how much of the portfolio ultimately moves to a negative amortization, Rizvanovic said, adding that BMO and TD would face “a very manageable impact.”CIBC did not offer an immediate comment.Darcy Briggs, portfolio manager at Franklin Templeton Canada, said one of the key factors for “keeping persistent demand is mortgage forbearance.””If your monthly payment doesn’t change, consumer behavior doesn’t change so spending habits and patterns don’t change. So it is working counter to what the Bank of Canada is trying to accomplish,” Briggs added.($1 = 1.3181 Canadian dollars) More