Global economy caught in perfect storm as prices soar

Rebound as Covid-19 curbs are eased exposes supply chain shortages amid energy crunch

LONDON/TOKYO • From soup in Tokyo to fried chicken in London, consumers are starting to feel the pinch from the surge in costs coursing through the global economy.

The rebound as Covid-19 curbs are eased has exposed supply chain shortages, with firms scrambling for workers, ships and even fuel for power plants, threatening the fledgling economic recovery.

Britain's biggest chicken producer said the country's 20-year cheap food binge is ending and food price inflation could hit double digits. Shortages of warehouse workers, lorry drivers and butchers as the world's fifth-largest economy deals with Brexit as well as Covid-19 are exacerbating strains being felt globally.

Ikea is leasing more ships, buying containers and re-routing goods as the world's largest furniture brand seeks to mitigate a "perfect storm" of disruptions.

Inter Ikea chief executive Jon Abrahamsson told Reuters he expects the crisis to extend into next year, with the biggest challenge getting goods out of China, where around a quarter of the company's products are made.

Ikea said stores in North America have been hardest hit by product shortages, followed by Europe.

In the United States, President Joe Biden on Wednesday urged the private sector to help ease blockages that are threatening to disrupt the holiday season.

He said the Port of Los Angeles would join the Port of Long Beach in working round the clock to unload about 500,000 containers, while Walmart, Target and other big retailers would expand overnight operations to help out.

Even in Japan, where weak growth has meant that prices of many things - as well as wages - have not risen much in decades, consumers and businesses are facing a price shock for basics such as coffee and beef bowls.

With central bankers on high alert and inflation in Spain, Ireland and Sweden hitting 13-year highs, European Central Bank (ECB) president Christine Lagarde repeated that the upswing is seen as temporary and said there were no signs of it becoming embedded in wages.

"The impact of these factors should fade out... in the course of next year," she said.

Euro zone inflation is expected to hit 4 per cent before the year end, twice the ECB's target, and a growing number of economists see it remaining above the target throughout next year.

Dwindling power supplies suggest a bleak winter outlook in some parts of the world.

As northern China chills, coal prices held near record highs, with power plants stocking up to ease an energy crunch that sent factory gate inflation in the world's second-largest economy to an at least 25-year high last month.

Coal India, the world's biggest coal miner, said it had temporarily stopped supplying non-power users as the country battles one of its worst power supply deficits.

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

Weak demand is capping consumer inflation, however, forcing policymakers to walk a tightrope between supporting the economy and stoking producer prices.

There are few signs of any energy cost reprieve, with Brent crude oil futures above US$84 a barrel on expectations that soaring natural gas prices will drive a switch to oil to meet winter needs.

The International Energy Agency said the crunch could boost oil demand by half a million barrels per day. "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," it said.

Top economic institutes have cut their joint forecast for 2021 growth in Germany, Europe's largest economy, to 2.4 per cent from 3.7 per cent as supply bottlenecks hamper output.

German government and industry sources told Reuters that the government plans to ease the pressure on consumers from pricier energy by cutting the surcharge that helps fund renewable energy investment by 43 per cent next year.

In Singapore, two energy providers, including one of the largest independents, are exiting the market while at least three others have stopped accepting new clients due to rocketing wholesale energy prices, sources said.

Meanwhile, the White House has been speaking with US oil and gas producers about helping to bring down fuel costs, two sources said.

The average US retail cost of a gallon of petrol is at a seven-year high, and winter fuel costs are forecast to surge.

Dutch navigation and digital mapping company TomTom warned that supply chain problems in the auto sector could last well into next year. "Collectively, we have underestimated how big the supply chain issues, and especially for semiconductor shortages, have been or have become," TomTom chief financial officer Taco Titulaer told Reuters.

A global semiconductor chip shortage has forced carmakers still recovering from the pandemic to halt production again.

Italian-American vehicle maker CNH Industrial on Wednesday said it will temporarily shut several European agricultural, commercial vehicle and powertrain manufacturing plants because of problems procuring components.

Soaring demand is, however, proving a boon for some.

Taiwan's TSMC, the world's largest contract chipmaker, has reported a near 14 per cent jump in its third-quarter profit.

TSMC and Taiwan have become central to efforts to resolve the global chip shortage, which has also hit makers of smartphones, laptops and consumer appliances.

Some companies, such as Toyota Motor, are intensifying efforts to restart production. The Japanese carmaker hopes to do so in December with a rebound in shipments from pandemic-hit suppliers, three sources said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 16, 2021, with the headline 'Global economy caught in perfect storm as prices soar'. Subscribe