Evidence of inflationary pressures mounts


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Good evening,

If you’re thinking of decorating your house, then best get down to the hardware store pronto.

The soaring price of paint, flagged today by Europe’s largest producer Akzo Nobel, is just the latest example of how rising costs of raw materials are set to hit consumers’ wallets in the months ahead.

Akzo chief Thierry Vanlancker said rises in costs and supply shortages were widespread. “It’s probably easier to say where we don’t feel the pressure. It’s very much across the board,” he said. “We do believe this situation is going to be with us for most of the first half of 2022.”

Akzo’s warning comes on the same day as inflationary pressures were highlighted by new official data from the UK and EU.

In the UK, the annual rate of consumer price inflation fell slightly from 3.2 per cent to 3.1 per cent in September, but this is largely seen as a blip, caused by an artificial jump in restaurant prices last year when the government’s Eat Out to Help Out subsidy scheme ended. Economists expect the rate to hit 4 per cent or more by the end of year as the rise in wholesale energy prices is passed on to consumers.

UK business groups today warned the government of the continuing inflation threat from the supply chain crisis. “Six months ago our businesses all thought this was transitory, now every business I know expects this to last into 2023 and 2024. Every single one,” said Ian Wright, chief executive of the Food and Drink Federation. The jump in costs and rocketing freight rates meant inflation was now “baked in” to the UK economy, he argued, with the rate in the food and hospitality sector running at a “terrifying” 14 to 18 per cent.

Poorer households — already suffering from benefit cuts — would also see prices eating away at the real value of their wages, “a lesson families can ill-afford to learn for a third time in a decade”, according to the Resolution Foundation think-tank.

Across the Channel, final figures for eurozone inflation in September confirmed CPI rose from 3 per cent in August to 3.4 per cent. For the EU as a whole, CPI rose from 3.2 per cent to 3.6 per cent. Energy prices were the biggest single driver.

Akzo is not the only manufacturer to note the effect of rising input costs during third-quarter updates this week.

Baker Hughes, the oilfield services company, blamed inflation and supply chain problems for disappointing profits, but others such as Nestlé, Europe’s largest foodmaker, have been able to weather the pressure by increasing prices and lifting full-year sales forecasts. US consumer goods bellwether Procter & Gamble likewise said it would raise prices as it stuck to its full-year earnings outlook. Other big names such as Colgate-Palmolive, General Mills and Kimberly-Clark have also announced price increases.

Another noteworthy trend, according to a new report published today, is the end of the “Amazon effect”. Online retailers, which for many years have helped drive down prices, have now begun to push prices upwards.

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Need to know: the economy

A new winter lockdown was ruled out by UK business secretary Kwasi Kwarteng after yesterday’s official figures showed a rise in daily Covid-19 deaths to 223 — the highest since mid-March. Today’s figures showed 179 deaths, but a rise in infections from 43,738 to 49,139. There was also an admission from health secretary Sajid Javid that daily cases could go as high as 100,000. Health leaders have urged the government to activate its “Plan B” to avert a new crisis, including compulsory mask-wearing, vaccine passports and work-from-home orders.

Column chart of UK fatalities  within 28 days of a positive test showing UK coronavirus daily death tolls March to October

The sudden resignation of Bundesbank chief Jens Weidmann this morning throws doubts on the eurozone’s strategy for economic recovery. Weidmann, a fierce critic of the EU’s ultra-loose monetary policy, will leave just as the European Central Bank prepares for its crucial December meeting, when it is due to decide on a timetable for winding down its emergency pandemic measures.

Latest for the UK and Europe

UK chancellor Rishi Sunak will use next week’s Budget to slash a tax surcharge on bank profits from 8 per cent to 3 per cent, in an effort to recover some of the damage done by Brexit. Thousands of jobs and more than a trillion pounds of assets have gone to rivals such as Frankfurt, Paris and New York since the UK lost unrestricted EU market access. In addition, Amsterdam has overtaken London as the top location for trading euro-denominated shares and derivative contracts.

Another interesting angle on the energy price crisis: Brussels is having trouble deciding whether nuclear power and natural gas should qualify for “green” finance. The EU’s classification rules are being closely watched by investors and regulators in the US and UK, who have said they will come up with their own systems. Member states will discuss the issue and the wider crisis at a summit tomorrow.

Brussels has also signalled that looser Covid-era state aid rules could be extended beyond the end of the year as businesses plead to keep the temporary rules in place.

Global latest

China’s 20 years of supercharged growth have been good news for those developing countries that have supplied it with raw materials, but as the nation’s boom ends — exemplified by the problems of big developers such as Evergrande — some will be hit particularly hard at the same time as they struggle to cope with rising food and energy prices.

Global supply chain problems could last “several months”, according to World Trade Organization chief Ngozi Okonjo-Iweala. Speaking at the FT Africa Summit, she said the “supply-demand” mismatch and a shortage of containers had been compounded by the two-tier global recovery created by the uneven distribution of vaccines. Watch her interview with FT editor Roula Khalaf.

Need to know: business

UK regulators have allowed Heathrow to raise airport charges as part of its attempts to rebuild after a disastrous 18 months. Airlines are firmly against the increases, which rise from £22 per passenger to up £34.40 over the next five years, as they are typically passed on to the consumer in higher fares. Columnist Helen Thomas says it’s a bum deal for passengers.

It’s not all bad news for airlines: With the world’s seaports jammed, airlines are carrying increasing amounts of cargo. The Airforwarders Association told the FT’s Trade Secrets newsletter that demand was so hot charterers were using passenger planes stacked full of boxes on the seats and in the baggage holds. “If you’re not on a boat now, it’s not going to be a fine Christmas,” its executive director said.

Vaccines are much more expensive to develop and manufacture than other drugs, writes chief business commentator Brooke Masters, but Covid-19 has shown us that technological assistance and pre-purchase contracts can help fix the market. “Governments and multilateral groups should make it more profitable for companies to tackle developing country and rare diseases all the time. That way research and manufacturing expertise would be available when the whole world needs it,” she argues.

The World of Work

The idea that workers in the post-pandemic world would flock to new types of flexible office space provided by the likes of WeWork seems to have taken a bit of knock. The company finally makes its stock market debut in New York tomorrow, but with its original valuation of $47bn sharply reduced to just $9bn.

The shift to working from home during the pandemic worked out fine for those who crave autonomy — it’s hard to micromanage staff when you can’t keep close tabs on them. But letting go shouldn’t be seen as a negative for managers, argues Jo Owen. Staff will perform better if listened to and given support rather than subjected to command-and-control style leadership.

Covid cases and vaccinations

Total global cases: 241.5m

Get the latest worldwide picture with our vaccine tracker

And finally…

It’s almost time for FT Weekend Magazine’s annual Women of the Year issue. Tell us your nominations and we’ll publish a selection on FT.com in December, alongside picks from FT editors.

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