Global economy in perfect storm

FROM beef bowls in Tokyo to chicken fillet rolls in London, consumers are beginning to feel the pinch from the surge in costs washing over the global economy.

The rebound in economic activity from Covid-19 restrictions has exposed shortages across the supply chain with companies scrambling to find workers, ships and even fuel to powers factories, threatening a nascent recovery.

Britain’s biggest chicken producer warned that the country’s 20-year binge on cheap food is coming to an end and food price inflation could hit double digits due to the tidal wave of costs. As it emerges from Brexit and Covid-19, the world’s fifth largest economy faces an acute shortage of warehouse workers, truckers and butchers, exacerbating global supply chain strains.

“The days when you could feed a family of four with a £3 (about R60) chicken are coming to an end,” Ranjit Singh Boparan, owner of the 2 Sisters Group, said yesterday.

Even in Japan, where weak growth has meant that prices of many things, including wages, haven’t 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 only stopped falling in August, snapping a 12-month deflationary spell. Economists and policymakers expect to see the recent price rises reflected in official data in the coming months.

In the US, President Joe Biden urged the private sector to help ease supply chain blockages that are threatening to disrupt the US holiday season. Biden said the Port of Los Angeles would join the Port of Long Beach in expanding round-the-clock operations to unload an estimated 500 000 containers waiting offshore, while Walmart , Target and other big retailers would expand their overnight operations to try to meet delivery needs.

With winter approaching in some parts of the world, the prospects look

bleak as power supplies dwindle. As cold weather swept across northern China, coal prices held near record highs, with power plants stocking up on the fuel to ease an energy crunch that is fuelling unprecedented factory gate inflation in the world’s secondlargest economy.

China’s widening power crisis, caused by shortages of coal, high fuel prices and booming post-pandemic industrial demand, has halted production at numerous factories including many supplying big global brands such as Apple Inc.

Soaring energy prices helped send China’s factory gate inflation to its highest in at least 25 years in September, with PPI rising 10.7% year-onyear, data showed. But weak demand capped consumer inflation, forcing policymakers to walk a tight rope between supporting the economy and

further stoking producer prices.

So far there are few signs of any reprieve in energy costs, with oil prices climbing again yesterday on a biggerthan-expected draw in US gasoline and distillate stocks.

The rise was also supported by expectations that soaring natural gas prices as winter approaches will drive a switch to oil to meet heating demand.

The International Energy Agency (IEA) said that the energy crunch is expected to boost oil demand by half a million barrels per day (bpd) and could stoke inflation and slow the world’s recovery from the Covid-19 pandemic.

“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 Paris-based agency said in its monthly oil report. The IEA warned that spare

production capacity from producer group Opec+ is set to shrink rapidly from 9 million bpd in the first quarter of this year to only 4 million bpd in the second quarter of 2022. That output capacity is concentrated in a small handful of Middle East states, it said.

“A surge in spending on clean energy transitions provides the way forward, but this needs to happen quickly or global energy markets will face a bumpy road ahead,” the report said

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

In response to the growing energy price crisis, the White House has been speaking with US oil and gas producers in recent days about helping to bring down rising fuel costs.

In the US, the average retail cost of a gallon of gas is at a seven-year high, and winter fuel costs are expected to surge, according to the US Energy Department. Oil-and-gas production remains below the nation’s peak reached in 2019.

Dutch navigation and digital mapping company TomTom warned that supply chain problems in the auto sector could last until the first half of 2022 after it reported a bigger than expected quarterly core loss.

Auto production has been hit by a global shortage in semiconductor chips, which has forced carmakers still recovering from coronavirus disruptions to halt production again.

“Collectively we have underestimated how big the supply chain issues, and especially for semiconductor shortages, have been or have become,” TomTom’s chief financial officer Taco Titulaer told Reuters yesterday.

The soaring demand is a boon for some companies. Taiwan’s TSMC, the world’s largest contract chipmaker, reported a near 14% jump in third quarter profit.

TSMC and Taiwan in general have also become central in efforts to resolve the pandemic-induced global chip shortage, which has hurt manufacturers of smartphones, laptops and consumer appliances as well as automakers.

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

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

In Britain, retailers warn that pressure on global supply chains has increased with reduced raw material availability leading to commodity inflation.