Inflationary pressures in Germany are continuing to hit the roof.
German manufacturers and other producers hiked their prices by a startling 33.6% in May, compared with the previous year, as they passed on soaring commodity prices, and rising costs from supply chain disruption.
That’s the highest increase in producer prices on record, going back to 1949.
Prices rose 1.6% in May alone.
Statistics body Destatis reports that German energy prices were 87.1% higher than a year ago, while metal prices jumped 38.1% (including a 51% jump in pig iron, steel and ferro-alloys).
But prices rises went much further. fertilizers and nitrogen compounds more than doubled over the last year, costing 110.9% more, while livestock feed prices increased by 48.7% — all bad news for farmers. And that’s pushing up food prices, with cereal flour prices were 44.8% higher than in May 2021.
The report also shows how industrial costs have jumped; industrial gas prices are up 68.8% more than a year, packaging made of wood was up 67.4%, while softwood lumber was 41.9% more expensive.
You might not expect it, given easyJet’s flight cancellations today, but the outlook for global airlines is improving.
Industry body IATA has predicted that airline losses will narrow this year thanks to a rebound in demand for air travel, as it upgrades its forecasts.
Global airlines are now expected to post a $9.7bn loss in 2022, much better than the $42.1bn loss racked up in 2021, and almost $2bn better than previously forecast.
And the industry could return to profit next year.
IATA CEO Willie Walsh told the gathering of airline chiefs that the industry was “leaner, tougher, and nimbler”, declaring:
“Industry-wide profit should be on the horizon in 2023”
“We are rebounding. By next year, most markets should see traffic reach or exceed pre-pandemic levels.”
In an interview with Reuters, Walsh played down concerns of a so-called ‘demand cliff’ that would spell a short-lived recovery.
“I don’t think it’s a flash in the pan. I think there is some pent-up demand being fulfilled at the moment, but you’ve got to remember we’re still well below where we were in 2019.
“So I think there’s still a lot of ground to make up before we can get into the debate as to whether we’ll see that taper off.”
Back in the markets, recession fears have dragged copper down to its lowest level this year.
Copper, seen as a barometer of economic health dipped to $8,955 a tonne in London trading, after hitting its lowest since early October.
Economic slowdown fears are hitting metal prices, on concerns that demand will weaken — especially if Covid-19 lockdown in China keep hitting factory operations.
ANZ commodity strategists said in a note.
“This comes amid uncertainty around the demand outlook in China. Renewed outbreaks of COVID-19 have cast doubt on the recovery from lockdowns that have slowed down industrial activity.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, says:
“This year’s summer season was meant to be a festival of resilience for airlines, a chance to show off their strength at getting through the pandemic, and successfully ferrying customers on their seriously long-awaited holidays.
Instead, the industry has been hit by a PR firestorm, as scaled back workforces buckle under the weight of returning demand, leading to last minute cancellations. easyJet has now announced plans to consolidate its planned departure list, with hopes most customers will be able to rebook without changing their leaving date.
From a financial perspective, these plans are going to prolong total recovery for easyJet. The costs that come with ramping operations back up are huge. So while it’s a customer apology being dolled out today, any deviation from the new plan will mean the same courtesy would be due to shareholders.
Underneath all the noise, trends are positive. Crucially, demand for travel is there. Not being able to service that demand fully is a crying shame, but it does bode well for the future.”
Shares in easyjet have dropped 3.3% in early trading, to the bottom of the FTSE 250 index of medium-sized companies traded in London.
It told the City this morning that costs will be higher than previously guided, due to travel disruption and the ‘enhanced resilience’ it is putting into place.
Easyjet intends to cut an unspecified number of flights at Amsterdam’s Schiphol airport this summer, Dutch news agency ANP is reporting, citing a spokesperson.
Easyjet is one of the largest customers at the airport, behind the Dutch arm of Air France-KLM.
The move follows a decision last week by Schiphol to cap the number of passengers allowed at the airport during peak season, leading to a 16% reduction in planned flights, due to a lack of security and other workers at the airport (via Reuters).
johan lundgren, easyjet Chief Executive, says cutting flights will ‘increase resilience’ over the summer, after the airline fell short for some passengers.
“Delivering a safe and reliable operation for our customers in this challenging environment is easyJet’s highest priority and we are sorry that for some customers we have not been able to deliver the service they have come to expect from us.
“While in recent weeks the action we have taken to build in further resilience has been seen us continue to operate up to 1700 flights and carry up to a quarter of a million customers a day, the ongoing challenging operating environment has unfortunately continued to have an impact. which has resulted in cancellations.
“Coupled with airport caps, we are taking pre-emptive actions to increase resilience over the balance of summer, including a range of further flight consolidations in the affected airports, giving advance notice to customers and we expect the vast majority to be rebooked on alternative flights within 24 hours.
“We believe this is the right action for us to take so we can deliver for all of our customers over the peak summer period in this challenging environment.”
Budget airline easyJet is cutting more flights in an attempt to avoid a repeat of the travel chaos suffered by passengers in recent months.
EasyJet has announced it is reducing capacity until the end of September, after flight caps were announced at London Gatwick and Amsterdam.
The airline — one of the worst hit by recent disruption — is “proactively consolidating” a number of flights across affected airports. This will give customers advance notice and the potential to rebook onto alternative flights, it says.
EasyJet points to problems such as air traffic control delays and staff shortages in ground handling and at airports, shortages of staff including cabin crew, and delays getting IDs approved so new hires can start.
These problems have prompted flight caps at Gatwick and Schiphol in the last few days.
EasyJet says expects to rebook the majority of customers on alternative flights, with “many” being on the same day as originally booked for.
The cuts mean EasyJet will run at around 90% of its pre-pandemic flights (2019) in July to September, down from a previous target of 97% of pre-Covid flights.
Capacity in April-June will be around 87% of pre-Covid levels, below the 90% previously expected.
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Fears of a possible global recession weigh over global stock markets today, as economic data sources and inflation continued to climb.
Last week, stock markets posted their biggest percentage decline in two years, as investors worry that global central banks will push economies into recession as they try to subdue rising prices.
And there’s no argument that economies are losing pace.
Joe Biden’s treasury secretary Janet Yellen says she expects “the economy to slow” but continued insisting that a full-blown recession is not “at all inevitable”.
Yellen told ABC’s This Week host George Stephanopoulous that her financial outlook results from how the economy has “been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment.”
“It’s natural now that we expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.”
Some Asia-Pacific markets are racking up further losses today, with Japan’s Nikkei dropping another 1% and South Korea’s KOSPI tumbling 2.4%.
That takes global markets further into a bear market (more than 20% off their recent peak).
Hebe Chenmarket analyst at IGsays that everyone is talking about a recession now, but the official definition of ‘two consecutive quarters of decline’ may sound pale and dry:
The market last week just painted a typical recession picture that ticked almost all the boxes: inflation is flying to the roof, interest rates are non-stop rising, two major US stock indices [S&P 500 and Nasdaq] are trapped in the bear market (with the 3dr one on the way) and investors are selling shares of the best companies.
Last but not least, commodity prices start to drop.
Stocks slumped last week as the US Federal book announced its biggest interest rate rise in 15 years, the Bank of England raised rates to a 15-year high, and Switzerland made a surprise rate hike.
Despite this market turbulence, central bankers continue to signal that they will squeeze price pressures out of their economies.
Federal Reserve Governor Christopher Waller on Saturday vowed to pursue a whatever-it-takes approach to fighting inflation, signaling that the Fed could repeat last week’s three-quarter-point rate hike next month.
“If the data comes in as I expect, I will support a similar-sized move at our July meeting,” Waller told a Society for Computational Economics conference in Dallas.
“The Fed is ‘all in’ on re-establishing price stability.”
The crypto crash continued over the weekend, with Bitcoin tumbling below $20,000 on Saturday before a Sunday rebound., which still left it 70% down from its record highs
Also coming up today:
Wall Street will be closed as America celebrates Juneteenth National Independence Day.
We’ll hear from Bank of England policymaker Catherine Mann, when she gives a speech on ‘Monetary Policy in the Global Context’ to an event run by MNI Market News.
Fellow Monetary Policy Committee member Jonathan Haskel is giving the keynote speech at TechUK Policy Leadership Conference.
Mann and Haskel both wanted to raise UK interest rates from 1% to 1.5% last week, while the majority of MPC members pushed for a smaller rise to 1.25%. With other central banks also tightening policy hard, some economists think the BoE could plump for a 50bp hike in August.
- 7am BST: German PPI index of producer prices for May
- 9am BST: MPC member Jonathan Haskel speech: ‘Restarting the future: how to fix the intangible economy’.
- 10am BST: Eurozone construction output report for April
- 11am BST: German Bundesbank’s monthly report
- 2pm BST: MPC member Catherine Mann speech: ‘Monetary Policy in the Global Context’