Aurelia Butler

BERLIN (Reuters) – German companies doing business in China are worried the Omicron coronavirus variant will trigger more strict lockdown measures from Beijing that could exacerbate supply chain problems, the DIHK Chamber of Commerce said on Tuesday.”The Chinese strategy with targeted lockdowns has been very efficient so far,” Jens Hildebrandt, DIHK’s executive board member in China, told Reuters in an interview.But the more contagious Omicron variant could challenge the zero-COVID approach by Chinese authorities, especially as more Chinese citizens will travel across the country due to the upcoming holiday season, Hildebrandt said.”There will be a lot of travel despite warnings,” he said.The International Monetary Fund (IMF) on Friday called on China to reassess its zero-COVID approach given the emergence of the highly contagious Omicron variant.IMF Managing Director Kristalina Georgieva said the strategy, which has included sealing off entire cities with millions of citizens, had increasingly proved to be a burden for the domestic and global economy.”The criticism of the IMF is not entirely unjustified,” Hildebrandt said.But he added Beijing would probably stick to its zero-COVID strategy, in part because scientific studies suggested Chinese vaccines were not as effective against Omicron as mRNA vaccines from Western countries.The DIHK’s concerns were echoed by the BDI industry association.”Should the Omicron variant also be transmitted more quickly and easily in China, this could again become a bottleneck for global supply chains and fuel a recession in certain sectors of German industry,” BDI said in its “Global Growth Outlook” published on Monday.With the Olympic Games starting in Beijing next week, thousands of foreigners would enter the country and increase the infection risk from Omicron, potentially leading to more strict lockdowns, BDI warned.This could pose new challenges for producers and exporters as well as companies at the end of the supply chain, it said.”The bottlenecks would probably also be accompanied by higher prices, which would continue to affect inflation,” BDI said. “The development of the coronavirus pandemic in China thus poses a risk for the recovery process of the German industry.” More

PRAGUE/BUDAPEST (Reuters) – Czech foundry Benes a Lat has seen its energy bill double in the past year and its finance director is racing to get client contracts rewritten so it can pass on some of the burden.The family firm’s challenge is mirrored in thousands of companies across central Europe, big and small, which are grappling with soaring costs for everything from parts, materials and transport to energy and growing wage demands.”We are an energy-consuming (firm), so it’s had a huge impact,” Benes a Lat’s Chief Financial Officer Jan Lat said. “We are in negotiation with customers to get indexing (with energy prices) back into contracts to follow market prices. Clearly every buyer’s first reaction is: It’s your problem!”Where companies are successful in sharing the pain, this feeds into consumer inflation and adds to a price spike in central Europe that has been stronger than elsewhere on the continent due to the region’s consumer-driven recoveries and ultra-tight labour markets.The extent to which companies are able to lift prices at the beginning of 2022 can help determine where inflation will peak and how much further the region’s central banks need to tighten policy, analysts say. There is a growing risk that inflation will be stronger than some expect.”Companies are trying to shift higher costs at least partially to customers, which will feed into inflation,” said Michal Brozka, a Komercni Banka economist in Prague. Central European firms ended 2021 on a bullish note with business sentiment surveys improving, while consumer demand has stayed solid.The region is facing the same inflationary pressures as others, but is also battling strong wage growth with unemployment rates among the lowest in the EU.The Czech National Bank signalled this month inflation will be higher than previously expected, likely rising above 9% at the beginning of 2022 with a chance of going past 10%.Policymakers have already raised interest rates significantly, unlike the European Central Bank which has sought to look past the price spike in the adjacent euro zone.COSTS SURGINGLed by energy prices, soaring costs are being felt by goods producers across central Europe.A survey by the Hungarian GKI Institute in December showed small- and medium-sized businesses expect on average a 15% rise in costs in 2022, partly due to a 20% hike in the minimum wage by the government before an April 3 election. A Czech Industry Confederation survey found one in five firms expected to raise prices by at least 10%, and 38% will raise prices by 5-10%.Czech dairy group Madeta raised prices on its products by 10% or more this month. “We are trying to pass higher costs for energy, packaging materials and other inputs as much as we can into output prices. Unfortunately there is no other way,” Madeta director Milan Teply said.In Hungary, carmaker Suzuki is also passing some of its higher costs onto customers. “We are doing our best to optimize our costs but we will be forced to build a part of this rise into prices,” the company told Reuters.LOOKING FOR THE PEAKCapital Economics said last week that inflation is likely to remain high or fall back toward targets more slowly than expected in the Czech Republic, Hungary and Poland.Hungarian rate setters meet on Tuesday, and analysts expect the base rate to rise another 30 basis points to a nearly eight-year high of 2.7% to tackle inflation at a 14-year peak of 7.4%.Analysts in a Reuters poll forecast average inflation this year climbing to 5.5%, the highest since 2012 and a full 65 basis points above forecasts from a month earlier.The National Bank of Poland, battling inflation that is already at a more than two-decade high of 8.6%, has lifted its main rate by 215 basis points to 2.25% since October.Grzegorz Maliszewski, chief economist at Bank Millennium in Warsaw, said companies can continue passing on higher input prices while consumer demand stays strong.He added Poland’s main interest rate could climb to 4% this year.In the Czech Republic, producer prices grew last year at their fastest pace since 1995.Markets are betting the country’s central bank will hike its main rate, now at 3.75%, by another 50 basis points in February, following 300 basis points of rises between September and December. Some analysts think the rate could peak this year close to 5%. “…input cost increases are so broad… the pass-through to consumer prices is inevitable,” said Jakub Seidler, chief economist with the Czech Banking Association. “(The pass-through) will be much higher than we have seen in previous years.” More

JOHANNESBURG (Reuters) – Major central banks in sub-Saharan Africa will leave interest rates unchanged in coming days, starting with Nigeria and Kenya, and followed by Ghana at the end of the month, a Reuters poll suggested on Tuesday.In a survey carried out in the past week, median forecasts showed analysts expected the central banks of Nigeria and Kenya to keep rates on hold at 11.50% and 7.00% respectively. Ghana was seen leaving borrowing costs at 14.50% next week.”In Nigeria, FX policy will be the main focus of the MPC meeting, amid recent oil price strength,” Razia Khan of Standard Chartered said. “While we expect the Central Bank of Kenya to keep its policy rate on hold at 7.00%, with inflation risks increasing, policy normalisation will likely be a key focus at the press conference,” Khan added.Interest rates for these central banks have been relatively low since around 2015. However, Ghana and South Africa kicked off tightening last year, with the latter expected to hike rates again on Thursday to 4.00%. [ECILT/ZA]Financial Derivatives wrote in a note that heightened inflationary pressures could force most central banks in Africa to adopt a contractionary monetary policy, following in the footsteps of some advanced economies.Policymakers in the United States expect as many as three quarter-percentage-point rate increases this year, starting in March, with more likely in 2023 and 2024.This development is expected to attract capital flows to the dollar, likely weakening local currencies and stoking inflation.For that reason, not all respondents expected rates to stay on hold. Leeuwner Esterhuysen of Oxford Economics expects the Bank of Ghana to hike its policy rate by 100 basis points at the coming meeting as part of its ongoing attempt to re-anchor inflation expectations.Esterhuysen said economic momentum garnered in the second half of 2021 was set to spill over into this year, supporting his expectation for a rate hike. “Also, Ghana would like to pre-empt the Fed’s (expected) end-March rate hike in order to prevent significant capital outflows,” Esterhuysen said.The Reuters poll suggests rates will rise by end-September to 15.00%, 7.50% and 12.50% respectively in Ghana, Kenya and Nigeria.Growth in Ghana, Kenya and Nigeria was expected to recover this year, with these economies set to expand 5.1%, 5.0% and 2.8% after a difficult 2021 due to the coronavirus pandemic.(For other stories from the Reuters global economic poll:) More

China’s second logistics-focused exchange traded fund debuted this week even as the country’s battle to curb the spread of the Omicron variant with strict lockdowns continues to stretch global supply chains.Yinhua Fund Management’s CSI Modern Logistics ETF was listed on the Shanghai Stock Exchange on January 17 after raising Rmb269m ($42.4m) in initial assets, public records show.The listing comes seven months after the country’s first such thematic product, Fullgoal Fund Management’s CSI Modern Logistics ETF, was launched in June last year with marginally bigger first-round subscriptions of Rmb281m.As of January 10, the Yinhua ETF held only 27.2 per cent of its assets in Chinese stocks as it was still building its portfolio, according to its listing announcement.Both supply chain thematic ETFs track the CSI Modern Logistics Index, which has 46 constituents covering the country’s largest vendors, warehouses, transportation companies, distribution centres and online retailers.The underlying benchmark closed at 1,352.5 yesterday, up 17.5 per cent since the beginning of last year and 26.9 per cent since January 2020, as the pandemic spurred demand for online shopping with the central government implementing frequent regional lockdowns to maintain its zero-Covid target.The Fullgoal strategy has returned 14.9 per cent since inception, Wind data show, with its benchmark outperforming most broad-based indices in the meantime. Nonetheless, the ETF now runs only Rmb43m in assets, an 85 per cent plunge from the new subscriptions it first garnered.While the steep fall in fund assets is common as Chinese investors often rush to buy new funds only to offload to chase newer ones, it could also highlight lingering weaknesses in domestic consumption, which have arisen in part due to Chinese policymakers’ hardline measures to eliminate all coronavirus cases.A lockdown in the central city of Xi’an is now in its third week, with about 13m people still cooped up in their homes. Mandatory testing has been imposed in Tianjin, a populous port city near Beijing, as well as in several manufacturing hubs in the central Henan and southern Guangdong provinces.On January 15, Beijing reported its first locally transmitted case of Omicron, just weeks ahead of the Chinese Lunar New Year holiday and the Winter Olympics.The latest restrictions have exacerbated supply chain chaos in recent months. The container port at Ningbo in east China, the world’s third-largest, has suspended some trucking services after a local outbreak, aggravating ship congestion.Meanwhile, carmakers Volkswagen and Toyota both closed their Tianjin plants last week. In Xi’an, Samsung has struggled with staff shortages because of the lockdown.In a sign of nagging anxiety among Chinese consumers, retail sales saw a year-on-year increase of just 1.7 per cent in December, the slowest rate in 14 months.But even as businesses operating in China grapple with raw materials shortages and shipping bottlenecks, the growth in the local logistics sector, well buttressed by the largest digital shopper population in the world, is predicted to continue on the upward trend it has tracked over the past six years.Between January and November last year, Chinese courier services delivered almost 98.1bn parcels within the country, according to the Ministry of Transport, up by 32.3 per cent from a year ago.Chinese suppliers’ revenues increased almost a third between 2016 and 2020 to Rmb10.5tn, data from China Commercial Industry Research Institute show. The figure for 2021 is expected to reach Rmb11.3tn, a slight dip in expansion but still above pre-pandemic levels.*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com. More

Jon Fletcher, general manager of the Grange Hotel near Sherborne in Dorset, was told last week by his drinks supplier that prices would rise by an average of 12 per cent this year, the latest in a punishing round of cost increases.“Everything is going up,” said Fletcher, who has had to cover similar rises in laundry costs and wages, and has been warned of a substantial increase in his energy bill. “It all adds up; some of it is very big.” British companies have warned that their recovery from the pandemic risks being dented by rising inflation as they wrestle with the dilemma of what proportion of the costs can be passed on to consumers.Glenn Turner, owner of Gloucestershire-based Brightfusion, which makes scientific toys and engines, was forced to put up prices last year by 6 per cent — the first increase on some products in 20 years. He is already planning the next rise for later this year.Glenn Turner: ‘I have never before experienced price increases coming from all parts of the business . . . supplies, postage, wages, energy, its across the board’ © Anna Gordon/FT“You worry about how the price increase impacts your sales — and ultimately your business,” said Turner, who also runs Maidenhead-based Kontax Engineering.“I have never before experienced price increases coming from all parts of the business . . . supplies, postage, wages, energy, its across the board. We know we have tax increases coming in future too. I am making a loss on some products owing to the increase in costs.”UK inflation rose to 5.4 per cent in December, the highest rate in 30 years. This has been driven by a broad range of factors, according to economists, but underpinned by policy decisions by central banks to keep rates low and pump cash into economies to help mitigate the effects of the pandemic.The inflationary pressure from the resulting consumer and corporate spending has been exacerbated by the energy crisis, a labour shortage that has pushed wages up and global supply chain disruption that has triggered higher costs for shipping and distribution.Steffan Ball, UK chief economist at Goldman Sachs, said the bank had revised up its estimates for inflation this year from 5.7 per cent to 7.2 per cent. “It’s a significant increase and it will be felt. We now assume the Bank of England will hike rates in February and May.” Inflation is a key risk to the economic recovery, according to Tony Danker, director-general of the CBI business lobby, and has become most companies’ top concern. “Input costs have been followed by higher wage expectations and taken together with energy prices, something has to give,” said Danker, who called on ministers to help smooth the “cash flow crunch” for small businesses and take action on energy costs. “Either this means yet more price rises and a bigger hit to the consumer, or it means less investment from falling margins and a worsening supply side.”Different industries are being affected by a variety of cost increases — from wages in the hospitality industry to raw materials and shipping in manufacturing and retail.Russell Weston, managing director at Snowbee, a Plymouth-based design and manufacturing company specialising in fishing tackle, said the biggest expenditure item was the “exorbitant” charges being levied by shipping companies. Russell Weston: ‘They are all charging whatever they can get away with’ © Snowbee“They are all charging whatever they can get away with,” he said, pointing to the cost of bringing a container from Asia rising from £1,650 before the pandemic to £9,500.Energy costs have doubled, he added. “It’s absolutely crippling. It affects every single consumer good coming into this country and it will go down to the consumer. There won’t be any more cheap fridges.”But companies can only pass on part of the increased costs, according to Fletcher. “We will put prices up but it’s difficult to raise food and beverage to a level that would absorb the costs. People will only spend so much on a pint.”Inflation is hitting businesses regardless of size, although many bigger companies can withstand the price shocks better than smaller rivals that have fewer financial resources and are often less able to pass on price increases to consumers. A survey carried out by Iwoca, the small business lender, found that nearly three in four small business owners said inflation was a top economic concern in 2022. Still, results this month from large listed British companies have started to show how broad the impact of sustained higher prices will be on UK plc.Retailers from Sainsbury’s, DFS and Dunelm to Topps, B&M and Asos have warned over operating costs inflation. M&S said that food inflation rose from 2.7 per cent in the 12 weeks to December to 3.5 per cent in December itself, but added that it had not yet passed much of that on to customers.Clothing retailer Next warned that prices would rise by up to 6 per cent in the second half of the year because of shipping costs and wage inflation. Topps Tiles said it had started to pass on costs caused by higher shipping costs and inflation in goods but “as selling prices will increase by a lower percentage than cost prices, we do expect percentage gross margins to be moderately lower”.

The hospitality sector is also suffering. Greggs, the bakery chain, said that inflationary pressures from both ingredients and labour mounted towards the end of 2021 and were likely to remain high in 2022. Whitbread, the hotels and restaurants group, said that it expected inflation of 7 and 8 per cent on about £1.4bn of its costs. Construction is also under pressure, with housebuilder Persimmon warning of material prices rising by more than 5 per cent. Investors worry that rising inflation will mean that earnings are hit or become worth less in realm terms, leading to a slump in company valuations.Nick Moakes, investment director of the Wellcome Trust medical research charity, said that inflationary pressures would lead to the toughest investment market since the last financial crisis. He warned about further pressure in the year ahead, with companies also needing to shoulder the burden of rising national insurance costs in April. “We’re in a world now where inflation is probably a lot more entrenched; it’s going to be difficult to shift.” More

If Christmas 2021 were a product for the UK supermarkets, it would have been a premium range, prosecco-laced pud. Is 2022 shaping up to be a value bag of pasta?Buoyant festive trading capped a good couple of years for supermarkets, since the strategic masterstroke of having most competition closed prompted more eating at home and bigger baskets with more treats. The typical Christmas splurge was boosted by the advent of Omicron, with strong growth in premium ranges from Tesco’s Finest to Iceland Luxury.Still, the mood may be changing. Food writer and anti-poverty campaigner Jack Monroe tweeted last week about the shrinking value range and big price rises on the cheapest products in her local store. One response was that Monroe’s broader point — that the poorest and most vulnerable in society are suffering higher inflation — doesn’t look right: ONS data suggests that inflation is being experienced at similar, high levels across income brackets.But it’s worth paying attention to Monroe, whose voice and experience carries weight. (Who can forget the pictures of pathetic food parcels sent out in lieu of free school meals in lockdown?) Poorer households, which spend a bigger share of income on non-discretionary items such as food and energy, are obviously less able to absorb rising grocery prices. The looming jump in the energy price cap could triple the number of English households spending more than a tenth of their budget on fuel bills to 27 per cent of the total, according to the Resolution Foundation. Resolution suspects that the price and availability of different supermarket value ranges aren’t well captured in official inflation numbers. A New Statesman tool shows in some areas, like fruit and veg, cheaper products have risen more in price than the median but in other staples that isn’t the case. Monroe plans an index to track this, and cited examples from her local Asda, such as pasta, which has risen from 29p a year ago to 70p. But, argues Steve Dresser of Grocery Insight, “these are ranging decisions being taken by certain supermarkets in certain stores. You can’t extrapolate across the market.” Asda, taken private last year by the Issa Brothers and TDR Capital, has said it is reducing the overall number of products it stocks. Yes, its SmartPrice range has fallen by about 40 lines since 2020. But, the chain says, it is the same as a year ago, albeit the full 200-plus strong range is only available in store, with about half that online. Consistency matters and there is scope for sticker shock elsewhere. Tesco, which should be the most predictable of the Big Four with about 650 products matched to Aldi prices, took flack last year when it switched its Metro format stores to Express, with higher convenience pricing. Sainsbury’s, which matches Aldi prices on about 250 lines, has generated price hike headlines as products move in and out of the promotion, or as its eight-week PriceLocks finish. Higher levels of inflation mean bigger, more noticeable jumps as offers end. Value ranges, which have gross margins of at most 20 per cent, compared with premium ranges at closer to 40 per cent, according to one ballpark estimate, may come under more scrutiny as input costs rise. What is true is that supermarkets have put more energy and care into value ranges in recent years: out went the no-frills, basic offerings seen as low quality; in came cutesier branding (such as Woodside Farms or Mary Ann’s Dairy) aping the success of Aldi and Lidl. That has, to some extent, been supplanted by price-matching schemes on frequently bought staples, whether cutesy value or normal own brand.This, of course, was because after the financial crisis complacent supermarkets defended healthy profit margins while the discounters ate their lunch: the interlopers’ market share went from about 5 per cent in 2008 to 15 per cent. The sector, says everyone you ask, is much sharper on prices now. The gap between the big supermarket chains and discounters has narrowed; market shares have stabilised.The supermarkets, helped by promotions that are now overwhelmingly linked to loyalty cards, have spent years persuading customers that it’s not really worth shopping around. In 2022, that will become a harder message to [email protected]@helentbiz More

Elevated fuel and housing costs drove Australian inflation to higher than expected levels in the fourth quarter of 2021, increasing the likelihood of an interest rate rise in the second half of the year. The consumer price index rose 3.5 per cent in the fourth quarter compared with the previous year, and 1.3 per cent from the third quarter, according to data published on Tuesday by the Australian Bureau of Statistics. Economists had expected a year-on-year rise of 3.2 per cent. The rapid spread of the Omicron coronavirus variant has added to inflation worries. Food prices have risen on supply chain disruptions as supermarkets, retailers and logistics companies have struggled to source workers owing to the country’s isolation policies. Michelle Marquardt, head of prices statistics at the ABS, said the most significant price rises in the December quarter were new housing, holiday and accommodation costs and automotive fuel, which surged almost a third from a year earlier.“Shortages of building supplies and labour, combined with continued strong demand for new dwellings, contributed to price increases for newly built houses, town houses and apartments,” she said. Unemployment hit a 14-year low in December, making for a tight job market, but the spread of Omicron and low migration numbers because of strict border policies have led to a labour shortage.

Shane Oliver, chief economist at AMP, said the data made a rate increase more likely. “So we continue to see the Reserve Bank of Australia raising rates in August with RBA commentary adjusting in a more hawkish direction. At least it’s not the 7 per cent inflation seen in the US,” he said.Sean Langcake, senior economist for BIS Oxford Economics, said that programmes designed to stimulate residential construction had led to cost inflation for materials and workers, contributing to underlying inflation.“While some of these cost pressures could still be seen as transitory, we expect the RBA will strike a more hawkish tone at next week’s meeting. A rate rise in 2022 is now more likely in light of these data,” he said.The RBA said in November that it was unlikely to raise interest rates from its 0.1 per cent level in the short term until inflation was sustainably within its 2-3 per cent target range.The timing of a potential rate increase could influence Australian elections, which are due to take place in the coming months, with housing prices a crucial issue for voters. More

SINGAPORE (Reuters) – Singapore’s central bank said on Tuesday it was tightening its monetary policy settings, in an out-of-cycle move, as global supply constraints and brisk economic demand fan inflation risks.The Monetary Authority of Singapore (MAS) manages monetary policy through exchange rate settings, rather than interest rates, letting the local dollar rise or fall against the currencies of its main trading partners within an undisclosed band.It adjusts its policy via three levers: the slope, mid-point and width of the policy band, known as the Nominal Effective Exchange Rate, or S$NEER.The MAS said it would raise slightly the rate of appreciation of its policy band. The width of the policy band and the level at which it is centered will be unchanged.Selena Ling, head of treasury research and strategy at OCBC, said she expects the central bank to tighten again in April, describing Tuesday’s move as only a “slight tightening” of the slope.”If they had announced a more aggressive tightening today, then that would have dampened expectations for April,” Ling said.Tuesday’s tightening came just a day after data showed Singapore’s key price gauge climbed in December by the fastest pace in nearly eight years.”This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium-term price stability,” the MAS said, referring to its tightening move late last year.The central bank is scheduled to review settings at a semi-annual policy meeting in April, when it was widely expected by economists to make a tightening move.The Singapore dollar strengthened to 1.3425 versus the U.S. dollar following the surprise move, its highest since October 2021.The MAS said it expects core inflation to be 2.0–3.0% this year, from the 1.0–2.0% expected in October. Headline inflation is expected to be 2.5–3.5%, from the earlier forecast range of 1.5–2.5%.”While core inflation is expected to moderate in the second half of the year from the elevated levels in the first half as supply constraints ease, the risks remain skewed to the upside,” the MAS said.The economy is expected to grow 3-5%, unchanged from earlier forecasts. More