Written by: Susannah Streeter | Hargreaves Lansdown
Market Report: Global food inflation headaches, UK producer costs fall and Wetherspoons shows resilience
- Food prices surge in Australia and Singapore as high ingredients and labour costs weigh.
- Increases in UK factory gate prices fall back to 14.7% annually but producers absorbing chunks of input costs
- J D Wetherspoons pours out resilient results showing our appetite for bargains extends to the bar.
- Wall Street stumbles on darkening outlook for the economy after caution from Microsoft.
Rampant food prices are causing migraines across the world with Australia and Singapore the latest to report that groceries are still soaring.
The rise in the costs of essentials has pushed Australia’s headline rate of inflation up higher than expected, to 7.9% in December, the highest level since 1990. It’s led to expectations that the Reserve Bank of Australia will plough on with a rate rise next month.
Food supplies globally have been hit by a storm of swirling pressures from spikes in cereals and fertiliser prices due to the war in Ukraine, the surge in energy costs, worker shortages, and severe weather events. Although wheat prices have now retreated to levels not seen since October 2021, thanks to re-opening of supply routes and the easing of drought concerns, other raw ingredients like sugar have remained in shorter supply, partly due to drops in output in Brazil with competition for sugar cane from the ethanol industry. Energy prices have also retreated but remain elevated, with Brent Crude steadying around $86 a barrel. The ongoing labour crunch and waves of strikes in many countries are still adding to company costs.
Many food producers are in a jam, hit by sticky input costs, but facing the pressure from supermarkets to keep prices low amid the wider cost-of-living crisis.
The extent to which companies running production lines are still absorbing high costs is clear for the latest snapshot from the ONS. Producer input prices were still significantly higher than factory gate prices in December. Factory gate prices rose by 14.7% in the year to December, down from 17.5% in October, while input prices rose 16.5% in the year to December, down from 20.2% in October. The falling costs of parts, equipment and fuel prices are all helping, and the overall trend is encouraging, showing inflation is heading in a downwards direction. But it’s clear that producers are still grappling with the high cost of doing business while attempting to keep a lid on price increases for customers.
The cost-of-living crisis may still be raging but it’s not affecting the appetite to socialise down the pub, instead it seems many punters are after a cheaper drink in hand and the choice of a cut price meal from the menu. The quest for bargains extends to the bar and it’s helped J D Wetherspoons pour out some resilient results. Like for like Sales were up 13.1% in the 25 weeks to 22 January. Tills were ringing over Christmas with sales in the last twelve weeks up 17.8% compared to the same period a year ago. The curse of Omicron which saw bars empty out last year was clearly more disruptive than striking rail workers. Given the performance over a tough period of trading, the company is cautiously optimistic about the months ahead, but is clearly worried that the lure of cheaper supermarket beer could still prove a challenge.
The FTSE 100 has opened in positive territory following gains on indices in Asia, but on Wall Street initial cheers for tech were drowned out as investors assessed the more difficult conditions ahead. Microsoft’s results showed a better-than-expected performance for its cloud computing division Azure, showing that there is resilient demand from firms who want to make efficiencies and cost-savings. But overall revenue growth lower than expectations, companies and consumers are clearly belt tightening and Microsoft is cautious about the quarter ahead with sales momentum slowing.
Fresh regulatory upset for Alphabet soured the better mood surrounding tech after the US Justice Department filed a lawsuit against Google. It’s alleged that the company violated anti-trust laws by abusing its monopoly in ad technology. White Alphabet has plenty of financial buffers to withstand further fines, it’s another headache when is also under criticism for not going far enough in re-sizing its workforce.