More households having to cut back on basic items as food costs rise

Rev 6:6 NAS And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • ‘Farms Are Failing’ as Fertilizer Prices Drive Up Cost of Food
  • Farmers in the developing world say they are curtailing production, which means global hunger could worsen
  • That means grocery bills could go up even more in 2022, following a year in which global food prices rose to decade highs. An uptick would exacerbate hunger—already acute in some parts of the world because of pandemic-linked job losses—and thwart efforts by politicians and central bankers to subdue inflation.
  • As the pandemic enters year three, more households are having to cut down on the quantity and quality of food they consume, the World Bank said in a note last month, noting that high fertilizer prices were adding to costs.
  • Around 2.4 billion people lacked access to adequate food in 2020, up 320 million from the year before, it said.
  • Inflation rose in about 80% of emerging-market economies last year, with roughly a third seeing double-digit food inflation, according to the World Bank.

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Breaking records Inflation highest since 1982

Rev 6:6 NAS And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • US inflation soared 7% in past year, the most since 1982
  • Ayers and other economists say prices may cool off some as snags in the supply chain ease, but inflation will remain elevated throughout 2022
  • Rising prices have wiped out the healthy pay increases that many Americans have been receiving, making it harder for households, especially lower-income families, to afford basic expenses
  • Used car prices have soared more than 37% over the past year
  • Clothing costs rose 1.7% just in December, its second month of sharp increases, and are up 5.8% from a year ago.
  • Gas 50% higher than a year ago.
  • Many restaurants have been passing along higher labor and food costs onto their customers

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Inflation expected to rise in January on most basic items

Rev 6:6 NAS And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.”

Important Takeaways:

  • Food prices are reportedly expected to rise again in January
  • A soaring inflation rate of 6.8% as of November — the highest rate of increase in 39 years — shows no signs of slowing down, with major food manufacturers preparing to raise their prices once again, according to the Wall Street Journal.
  • Persistent supply-chain disruptions and increasing labor costs are a major factor in the increases.
  • Kraft Heinz — which makes Oscar Mayer lunch meats, Kraft Macaroni & Cheese and Jell-O pudding — told retailers it is planning to raise prices on some items by as much as 20%
  • Mondelez International, which makes snacks including Oreo cookies and Ritz crackers, will increase prices by 6% to 7% in January,
  • Other food manufacturers including Campbell Soup and General Mills, maker of Cheerios, have also warned that they will be raising prices on their goods in January but have not disclosed what the price hikes will be.

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U.S. consumers see near-term inflation rising at twice pace of wage gains, survey shows

By Jonnelle Marte

(Reuters) – U.S. consumers’ short-term inflation expectations pushed higher in November and expectations for future earnings growth dropped, suggesting they expect price increases to outpace wage gains at an even faster rate in the near term, according to a survey released on Monday by the New York Federal Reserve.

Prices for food and other goods are rising at the fastest pace since 1982, according to data released by the Labor Department last week. That higher inflation is cementing expectations the Fed will raise interest rates next year.

The price increases are also eroding wage gains, and the survey suggests consumers expect that situation to worsen in the near term. While near-term inflation expectations rose, year-ahead earnings expectations declined in November.

Consumers said they expect inflation to reach a median of 6.0% in one year, up from an expectation of 5.7% in October. Expectations for year-ahead earnings growth dropped to 2.8% in November from 3.0% in the previous month.

That would leave inflation growing 3.2 percentage points faster than earnings in one year, the widest gap since the survey launched in 2013.

Median expectations for what inflation could be in three years, however, dropped to 4.0% from 4.2%, the first decline since June and only the second drop since October 2020. And uncertainty over what future inflation could look like also rose to new highs for the survey.

Expectations for future home price growth declined slightly but consumers are still expecting more robust growth than they did before the coronavirus pandemic. Consumers said they expect home prices to rise by a median of 5% in one year, down from 5.6% in October but well above the 3.1% expected in February 2020.

The monthly survey of consumer expectations is based on a rotating panel of approximately 1,300 households.

(Reporting by Jonnelle Marte; Editing by Paul Simao)

 

Mexico inflation quickens faster than expected to 20-year high

MEXICO CITY (Reuters) – Mexican annual inflation accelerated faster than expected in November to its highest level in over two decades, official data showed on Thursday, reinforcing bets the central bank will raise its benchmark interest rate again when it meets next week.

Figures from national statistics agency INEGI showed inflation in Latin America’s No. 2 economy jumped to 7.37% last month from 6.24% in October. That compared with the consensus forecast of a Reuters poll for 7.22%.

The November figure took inflation to its highest level since January 2001.

The core rate of inflation, which strips out some volatile items, reached 5.67%.

The Bank of Mexico (Banxico) last month raised its benchmark interest rate by 25 basis points to 5%, the fourth consecutive hike. It also revised up its expectations for Mexican inflation at the close of this year.

Banxico’s final monetary policy meeting for the year is due on Dec. 16. The bank targets inflation of 3%, with a one percentage point tolerance range above and below that.

Earlier this week, Irene Espinosa, a member of the central bank’s board, said Banxico’s monetary policy stance continues to be accommodative and that it should respond forcefully to anchor inflation expectations.

Month-on-month, Mexican consumer prices increased by 1.14% in November, the INEGI data showed. Meanwhile, the core index of prices rose by 0.37% from October.

(Reporting by Dave Graham; Editing by Andrew Cawthorne)

Brazil in recession as drought, inflation and interest rates bite

By Marcela Ayres and Camila Moreira

BRASILIA (Reuters) -Brazil’s economy contracted slightly in the three months to September, government data showed on Thursday, as surging inflation, steep interest rate hikes and a severe drought triggered a recession in Latin America’s largest economy.

The 0.1% decline in Brazil’s gross domestic product (GDP) in the third quarter, reported by official statistics agency IBGE, was below a median forecast for zero growth in a Reuters poll.

Brazil’s economic rebound from the worst of the COVID-19 pandemic has sputtered as inflation surged into double digits, forcing the central bank to raise borrowing costs aggressively despite the downturn.

Economists have said that the stubbornly high levels of inflation in Brazil have steadily eroded consumers’ purchasing power, proving a drag on the economy.

Some analysts said Thursday’s weak data may discourage the bank’s monetary policy committee, called Copom, from an even larger interest rate increase at its December meeting.

“Against this backdrop, we no longer see Copom upping the pace of monetary tightening next week,” William Jackson, chief emerging markets economist at Capital Economics, told clients in a note, forecasting another rate increase of 150 basis points.

Big rate hikes from the central bank, whose autonomy was written into Brazil’s constitution this year, are one more headwind for a weak economy, which is weighing on President Jair Bolsonaro’s popularity as he prepares to seek reelection in 2022.

Revised data showed a 0.4% drop in the second quarter, worse than the 0.1% decline reported previously. Two straight quarters of contraction meet the definition of a recession.

Unusually dry weather this year has also hurt key Brazilian crops such as corn and coffee. Vanishing reserves at hydropower dams drove up electricity costs, adding to price shocks.

Agricultural production fell 8.0% in the third quarter, while industrial output was flat and services advanced 1.1%.

Brazil’s auto industry has struggled to ramp up production amid a shortage of components such as microchips in global supply chains. Shortages have also hurt manufacturing in Mexico, whose economy contracted more than expected in the quarter.

WORSE TO COME

Some economists are warning of a deeper downturn next year.

The market outlook for 2022 economic growth has fallen from 2.3% in June to less than 0.6% in the latest central bank poll of economists, released on Monday.

Brazil’s Economy Ministry dismissed that consensus in a statement on Thursday, reaffirming its forecast of economic growth above 2% next year and pointing to recent job creation data as evidence of a resilient recovery.

Brazil’s unemployment rate fell to 12.6% in the third quarter from 14.2% in the prior quarter, data showed this week, hitting the lowest point since the beginning of the pandemic.

“The government has an obvious bias to overestimate (growth) as long as possible. But there comes a point when you can’t,” said José Francisco Gonçalves, chief economist at Banco Fator.

Compared to the third quarter of 2020, Brazil’s economy grew 4.0%, IBGE data showed, below a median forecast of 4.2% growth.

(Reporting by Marcela Ayres in Brasilia and Camila Moreira in Sao Paulo; Writing by Brad Haynes; Editing by Bernadette Baum, Daniel Flynn and Richard Chang)

 

U.S. economy gaining steam as manufacturing forges ahead; shortages still a constraint

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.

Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month. But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.

“Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues.”

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.

A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 61.0.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement,” said Timothy Fiore, ISM chair of the manufacturing business survey committee.

Global economies’ simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.

The Federal Reserve’s Beige Book on Wednesday described economic activity as growing at “a modest to moderate pace” during October and early November, but noted that “growth was constrained by supply chain disruptions and labor shortages.”

All of the six largest manufacturing industries in the ISM survey, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.

Makers of computer and electronic products said “international component shortages continue to cause delays in completing customer orders.” Transport equipment manufacturers reported “large volume drops due to chip shortage.” Furniture producers said “business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor.”

But there are some glimmers of hope. Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products. Supply of plastic resins is improving, accounts from electrical equipment, appliances and components, as well as plastics and rubber products manufacturers suggested.

The ISM survey’s measure of supplier deliveries slipped to 72.2 from 75.6 in October. A reading above 50% indicates slower deliveries.

The long delivery times kept inflation at the factory gate bubbling. The survey’s measure of prices paid by manufacturers fell to a still-high 82.4 from 85.7 in October.

Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.

Fed Chair Jerome Powell told lawmakers on Tuesday that “the risk of higher inflation has increased,” adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.

The Fed’s preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.

Stocks on Wall Street rebounded after Tuesday’s sell-off. The dollar was steady against a basket of currencies. Prices for longer-dated U.S. Treasury prices rose.

STRONG ORDERS

The ISM survey’s forward-looking new orders sub-index climbed to 61.5 last month from 59.8 in October. Customer inventories remained depressed.

With demand robust, factories hired more workers. A measure of manufacturing employment rose to a seven-month high.

Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October. That was broadly in line with expectations.

This, combined with consumers’ robust perceptions of the labor market last month suggest job growth accelerated further in November. First-time applications for unemployment benefits declined between mid-October and mid-November.

But a shortage of workers caused by the pandemic is hindering faster job growth. There were 10.4 million job openings at the end of September.

Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.

“Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November. The economy created 531,000 jobs in October.

The Labor Department is scheduled to publish its closely watched employment report for November on Friday.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

OECD says inflation is main risk to economic outlook

PARIS (Reuters) – The main risk to an otherwise upbeat global economic outlook is that the current inflation spike proves longer and rises further than currently expected, the OECD said on Wednesday.

Global growth is set to hit 5.6% this year before moderating to 4.5% in 2022 and 3.2% in 2023, the Organization for Economic Cooperation and Development said in its latest economic outlook.

That was little changed from a previous forecast of 5.7% for 2021, while the forecast for 2022 was unchanged. The OECD did not produce estimates for 2023 until now.

With the global economy rebounding strongly, companies are struggling to meet a post-pandemic snap-back in customer demand, causing inflation to shoot up worldwide as bottlenecks have emerged in global supply chains.

Like most policymakers, the OECD said that the spike was expected to be transitory and fade as demand and production returned to normal.

“The main risk, however, is that inflation continues to surprise on the upside, forcing the major central banks to tighten monetary policy earlier and to a greater extent than projected,” the OECD said.

Provided that that risk did not materialize, inflation in the OECD as a whole was likely close to peaking at nearly 5% and would gradually pull back to about 3% by 2023, the Paris-based organization said.

Against that backdrop, the best thing central banks can do for now is wait for supply tensions to ease and signal they will act if necessary, the OECD said.

Federal Reserve Chair Jerome Powell said on Tuesday that the U.S. central bank should consider winding down of its large-scale bond purchases faster amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.

In the United States, the OECD forecast the world’s biggest economy would grow 5.6% this year, 3.7% in 2022 and 2.4% in 2023, down from previous projections of 6.0% in 2021 and 3.9% in 2022.

The outlook for China was also less optimistic, with growth forecast at 8.1% in 2021 and 5.1% in both 2022 and 2023 whereas previously the OECD had expected 8.5% in 2021 and 5.8% in 2022.

However, the outlook was slightly more upbeat for the euro zone than previously expected with growth expected at 5.2% in 2021, 4.3% in 2022 and 2.5% in 2023 compared with previous forecasts of 5.3% in 2021 and 4.6% 2022.

(Reporting by Leigh Thomas, Editing by William Maclean)

Inflation worries, pandemic curb U.S. consumer confidence; house prices cooling

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue, but that probably does not change expectations for stronger economic growth this quarter.

The survey from the Conference Board on Tuesday showed consumers less enthusiastic about buying a home and big-ticket items such as motor vehicles and major household appliances over the next six months. But consumers held strong views of the labor market, with the gap between those saying jobs are plentiful versus hard to get widening to a record high.

“This isn’t a cause for concern as the relationship between spending and sentiment is loose, particularly in the short-run,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The good news is that consumers’ assessment of the labor market improved in November, pointing toward further acceleration in job growth.”

The Conference Board said its consumer confidence index fell to a reading of 109.5 this month, the lowest reading since February, from 111.6 in October. The survey was conducted before the discovery of Omicron, a new COVID-19 variant, that was announced last week by South African scientists.

Economists polled by Reuters had forecast the index falling to 111.0. The measure, which places more emphasis on the labor market, has dropped from a peak of 128.9 in June. The fall was less than that of the University of Michigan’s survey of consumer sentiment, which dropped to a decade low this month.

Data this month have suggested that the economy was accelerating in the fourth quarter, with consumer spending surging in October. But the outlook for next year has been clouded by the Omicron variant, which has since been detected in several countries outside the southern African region.

Not much is known about how contagious or vaccine resistant the Omicron variant is. The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, jumped to a reading of 46.9 this month, the highest on record, from 43.8 in October.

This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report.

Combined with declining new claims for unemployment benefits, it raises hopes that job growth accelerated further this month, though a shortage of workers remains a challenge. There were 10.4 million job openings at the end of September.

INFLATION FEARS MOUNT

Consumers’ inflation expectations over the next 12 months surged to 7.6% in November from 7.1% last month. Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that the higher prices were generally related to the pandemic, and warned that the risk of higher inflation had increased.

Stocks on Wall Street were trading lower on Powell’s inflation comments. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

Rising inflation is starting to influence consumers’ spending decisions, the Conference Board survey suggested.

Buying intentions for motor vehicles fell as did plans to purchase household appliances, television sets and refrigerators over the next six months. But intentions to buy washing machines and clothes dryers rose.

The survey also showed consumers less inclined to buy a house over the next six months. Slowing demand could help to further cool house price inflation.

A second report on Tuesday showed the S&P CoreLogic Case-Shiller’s 20 metropolitan area home price index rose 19.1% on a year-on-year basis in September after advancing 19.6 %in August.

Signs that house price growth was moderating were evident in a third report from the Federal Housing Finance Agency that showed house prices rose 17.7% in the 12 months through September after powering ahead 18.5% in August.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Canadian shippers find few easy alternatives for grain, oil cut off by flood

By Rod Nickel

WINNIPEG, Manitoba (Reuters) – Canadian exporters of commodities from grain to fertilizer and oil scrambled on Wednesday to divert shipments away from Port of Vancouver, which floods have isolated, but they found few easy alternatives.

The disaster, which has killed at least one person, has caused the latest blockage in the congested global supply chain, driving up inflation fears ahead of the holiday shopping season.

A month’s worth of rain in two days caused floods and mudslides in British Columbia that wrecked highways and two critical east-west rail lines owned by Canadian National Railway Co and Canadian Pacific Railway leading to Canada’s busiest port.

The Trans Mountain oil pipeline and part of an Enbridge Inc gas line have closed as precautions.

“That western corridor is our lifeblood,” said John Brooks, CP’s chief marketing officer, at an investor conference on Tuesday. “Just about all commodities to some extent flow through that.”

Vancouver’s port moves C$550 million ($437 million) worth of cargo a day, ranging from automobiles and consumer goods to commodities.

The alternatives include diverting commodities to British Columbia’s northern port of Prince Rupert, to the U.S. Pacific Northwest or across the continent to eastern Canada.

The clock is ticking. Port of Vancouver said it expects vessels to anchor longer while they await delayed cargo, a situation that usually results in shippers paying demurrage for the extra wait.

Buyers can also charge penalties for shipments that arrive late, raising the urgency to find alternatives.

“Everyone is looking at it,” one Canadian grain trader said.

Even if the railways can carry out repairs within a few days and restore service – they have not provided estimated timelines – delays will stretch for as much as one month given the backlog of shipments to work through, said a second grain industry source.

The Prince Rupert grain terminal, owned by Richardson International, Viterra and Cargill Inc, is already busy with exports, limiting its capacity to handle more volumes, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

Canola futures for January delivery fell 1.5% as traders factored in transportation problems from the floods.

Teck Resources, a copper and coal miner, said in a statement that it was diverting trains from Vancouver to a Prince Rupert terminal.

Canpotex Ltd, the potash export company owned by Nutrien Ltd and Mosaic Co, will ship more of the crop nutrient through its smaller terminals in Portland, Oregon. and Saint John, New Brunswick, spokesperson Natashia Stinka said.

Trans Mountain’s closure means some 300,000 barrels of oil and refined products each day will start filling storage tanks, or find another conduit.

The main alternatives are shipping oil east on Enbridge’s Mainline or south by train to the United States, said John Zahary, CEO of Altex Energy, which owns rail terminals in Alberta and Saskatchewan.

“(It) does seem like supply chains are so tight these days that when something happens, panic and scrambling becomes the plan,” Zahary said.

(Reporting by Rod Nickel in Winnipeg; Editing by Lisa Shumaker)