Aurelia Butler

High and rising inflation is fast becoming a global trend as the combination of surging energy costs, strong demand and supply chain disruptions continue to push up prices by more than economists expected only a few months ago.In the US, Canada, the UK and the eurozone, consumer prices rose in October at their fastest pace inasmuch as three decades. In emerging markets such as Turkey, Brazil and Argentina, inflation rates have hit double digits. Only in parts of Asia-Pacific, in countries such as China, Japan and Indonesia, is consumer price inflation still relatively subdued. But even there the inflationary trend is up, economists say. “Generally speaking, inflation is running hot in countries where it slumped the most last year,” such as the US and Germany, said Sylvain Broyer, economist at rating agency S&P. It is also rising particularly fast in emerging economies, where currency depreciations have fed into higher local prices. The inflationary surge has taken many economists by surprise. In some countries — such as the US, Canada, the eurozone, Brazil and Peru — inflation forecasts for this year have doubled in only a few months, according to Consensus Economics, a company that tracks leading forecasters.“Economists have been caught out by a few things — energy prices, which are famously hard to forecast, and the persistence of demand for goods even as economies have reopened,” said James Pomeroy, global economist at HSBC.Most economists still expect inflation to fall next year from current levels as the effect of one-off price increases fade away. However, they also expect inflation to last longer than previously thought, and are revising up their forecasts for 2022.“Bigger inflation forecast changes became necessary across all regions,” said Christian Keller, economist at Barclays.To keep things in perspective, the rise in consumer prices is nowhere near the levels reached in the 1970s and early 1980s, when annual inflation peaked at more than 15 per cent across the OECD’s 38 member countries. Even so, the clear trend is of a sharp upward swing, which will hurt consumer pocket books and may slow economic recovery.“Elevated inflation will strain household budgets and weigh on growth,” said Moody’s managing director Elena Duggar, adding it could also trigger food price controls and mandated wage increases in emerging markets.The one exception to the general pattern is the Asia-Pacific region. There, largely thanks to weak domestic demand and stable currencies, consumer prices as a whole are expected to rise by less than 2 per cent this year. In Japan, prices are stagnating after falling for most of the year. Consumer price “inflation in Asia-Pacific isn’t that high,” said Ben May, global economist at Oxford Economics. That is even the case in China, where companies have absorbed a 13.5 per cent spike in producer prices rather than pass the higher costs on to consumers. However, even there the number of countries with rising inflation grows almost daily. As of September, about two-thirds of the 100 countries and regions that Consensus Economics tracks are expected to have inflation of 2 per cent or more this year. A few months ago, less than half were forecast to breach that level. Similarly, the number of countries forecast to have high inflation next year is rising rapidly. One of the main factors pushing up prices generally is the surge in energy costs.Across the OECD, consumer energy prices rose in September by an annual rate of nearly 20 per cent, their fastest increase since 2008 and five times the headline inflation rate. That in turn has fed through into other prices.Food inflation also increased in September by one percentage point to 4.5 per cent, compared with the previous year. But even if food and energy inflation are stripped out, OECD consumer inflation still doubled to 3.2 per cent over the same period. “Higher energy prices are rippling through the economy — pushing up the costs of other raw materials and then feeding into those costs too,” said HSBC’s Pomeroy. The big question is whether the current inflationary surge proves to be temporary or more permanent. That largely depends on whether the rise in prices leads to unstainable wages increases. So far, though, there is very little evidence of that happening in “whatever metric you look at,” S&P’s Broyer said. More

CHICAGO (Reuters) – Thanksgiving dinner will cost U.S. consumers an average of 14% more this year in the biggest annual increase in 31 years, the American Farm Bureau Federation said, though shoppers can still find deals in grocery stores.Rising food and gas prices are squeezing U.S. consumers as the pandemic snarls global supply chains and the economic drag from the summer wave of COVID-19 infections fades.The Farm Bureau, which represents U.S. farmers and the broader agriculture industry, pointed to inflation and supply-chain disruptions for lifting the average cost of a Thanksgiving dinner for 10 people to $53.31 from a 10-year-low $46.90 in 2020. The cost is based on Farm Bureau shoppers who checked prices for turkey, cranberries, dinner rolls and other staples in stores from Oct. 26 to Nov. 8.”The cranberry sauce, the stuffing, all those things that are traditional, have gone up,” said Sherry Hooker, a 69-year-old retiree shopping at Jewel-Osco store in Chicago on Thursday. GRAPHIC: Thanksgiving dinner price jump https://graphics.reuters.com/USA-THANKSGIVING/MEAL/akvezmyrxpr/chart.png The COVID-19 pandemic has made it difficult to predict consumer demand, which adds to high prices, the Farm Bureau said. Average prices for turkey, the centerpiece of many Thanksgiving dinners, are up 24% from 2020 at about $1.50 per pound, Farm Bureau said. Without turkey, the price for the overall meal is up 6.6%. That is in line with the 6.2% increase in the U.S. Consumer Price Index in October, when the index saw its biggest annual rise since November 1990, although it is a bit above the 5.4% year-over-year increase for the Labor Department’s measure of costs for food consumed at home.Adjusted for inflation, Thanksgiving costs are up for the first time since 2015 and 7% higher than last year, Farm Bureau data show.In Chicago, Cinda Shaver, 62, said she now spends at least $120 a week shopping for two people at discount supermarket Aldi, up from $90 previously for the same items.Cooks can still find deals as the holiday approaches, though. Visits by Reuters to two grocery stores on Thursday showed prices vary widely. The same basket of items the Farm Bureau checked cost just $40.01 at a Big Y store in Newtown, Connecticut, including frozen turkey for 99 cents a pound. At Jewel-Osco in Chicago, generic brand frozen turkeys were on sale for as little as 49 cents a pound. Farm Bureau said its shoppers checked prices about two weeks before most supermarket chains began featuring whole frozen turkeys at lower prices. The average per-pound sale price for whole frozen turkeys was $1.07 from Nov. 5-11 and dropped 18% to 88 cents from Nov. 12-18, Farm Bureau said.”The good news is that the top turkey producers in the country are confident that everyone who wants a bird for their Thanksgiving dinner will be able to get one, and a large one will only cost $1 more than last year,” U.S. Agriculture Secretary Tom Vilsack said in a statement. The U.S. Department of Agriculture reported that prices for Thanksgiving staples are up about 5% from last year, based on government data. It tracked prices of a 12-pound turkey, sweet potatoes, russet potatoes, cranberries and a gallon of milk.Hooker, for one, will not cut back on her Thanksgiving feast because of high prices. Instead, she said she will “bite the bullet and have tradition.””It’s once a year,” she said. More

Earlier this month the BoE forecast inflation would reach around 5% in the second quarter of next year, more than double its official target, due to surging energy prices and supply bottlenecks as the world emerges from the COVID-19 pandemic.“You’re in a fairly febrile world … [the inflation picture] is two-sided,” he said in an interview with the Sunday Times.”There are risks both ways. Obviously, our concern would be that if it gets into second-round effects, it could be elevated for longer.”The second-round effects Bailey is particularly concerned about are wage bargaining and the labour market.”If the economy evolves in the way the forecasts and reports suggest, we’ll have to raise rates. Which, by the way, is entirely consistent with what I said in October,” he said.The governor said this week he was very uneasy about the inflation outlook and that his vote to keep interest rates on hold on Nov. 4 had been a very close call.The BoE wrong-footed many investors when it did not lift interest rates from their record low 0.1%, following comments from Bailey in late October which markets interpreted as a signal that a rate rise was very near.Since then, inflation has risen to a 10-year high of 4.2% and jobless data has not pointed towards higher unemployment after the end of the furlough scheme – a key concern that stayed the BoE’s hand at the start of this month.Further unemployment data will come before the BoE’s next meeting on Dec. 16.On Friday, BoE chief economist Huw Pill said the weight of evidence was shifting towards a rise in interest rates next month but that he had not made a decision, and markets would do better to focus on the longer term. More

BRUSSELS (Reuters) – The European Commission has started a long-awaited probe into whether Poland and Hungary should continue to receive billions of euros from the EU budget because of problems with corruption and the rule of law.Commission documents on Saturday showed letters were sent to Warsaw and Budapest on Friday asking governments for clarifications under a recent EU law allowing the suspension of EU cash if it may be misspent.The law was adopted last December but the Commission, the guardian of EU laws, has been slow to apply it, despite pressure from the European Parliament which even sued the Commission last month for inaction.Under a different legal process, the Commission has already suspended billions in grants to Poland and Hungary from the EU’s recovery fund, citing the same concerns over the rule of law and corruption.The letters sent on Friday are just the first step in a lengthy process, but may put at risk tens of billions of euros in EU cash to the countries over the next seven years.Both countries have two months to answer the letters. If the Commission were to conclude EU money was not safe in Poland and Hungary, it would still need a ruling from the EU’s top court before it could take action.Both countries challenged the law in March and while a non-binding view from the EU court’s advocate general is expected in early December, a full ruling might not come until the first quarter of 2022.Poland and Hungary have for years been under formal EU investigation for undermining the independence of the courts, non-governmental organisations and the media.SPECIFIC CONCERNSWarsaw’s relations with the EU have worsened after Poland’s Constitutional Tribunal, dominated by the ruling nationalist and euro-sceptic party, ruled in October that elements of EU law were incompatible with the Polish constitution. The Polish tribunal also said in July that Poland did not need to observe interim measures imposed by the EU’s top court in matters of Polish judiciary.”These two judgements of the Constitutional Tribunal could give rise to breaches of the principles of the rule of law … insofar as the correct application of Union law in Poland is concerned, and thereby put at risk the application of Union primary law and secondary legislation relevant to the protection of the financial interests of the European Union,” the Commission letter to Poland, seen by Reuters, said.The letter also lists concerns about the impartiality of Poland’s prosecutors, because the service is run by an active politician from the ruling party, who is justice minister and prosecutor general at the same time.Another concern listed is the independence of judges appointed by a council dominated by nominees of the ruling party as well as a new disciplinary system for judges which breaks EU treaties, according to ruling by the EU top court.Such issues “could affect the effectiveness and impartiality of the judicial proceedings on cases related to the irregularities in the management of the Union funds,” the letter to Poland said.The letter to Hungary, while mentioning concerns over the independence of judges, focused mainly on irregularities in spending EU money through public procurement. The concerns follow reports from the EU’s anti-fraud office OLAF showing nearly half of all public tenders in Hungary result in a single-bid procedure.During a decade in power, Hungarian Prime Minister Viktor Orban has been accused of using billions of euros of state and EU funds to prop up a loyal business elite which includes family members and close friends.In a report on the rule of law in Hungary in July, the Commission cited persistent shortcomings in Hungarian political party financing and risks of clientelism and nepotism in high-level public administration.”The identified deficiencies and weaknesses may… present a serious risk that the sound financial management of the Union budget or the protection of the Union financial interests will continue to be affected in the future,” the letter to Hungary said. More