Why Inflation Around the World Just Won’t Go Away
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,601,123 (+0.24%)       Melbourne $996,554 (-0.47%)       Brisbane $965,329 (+0.91%)       Adelaide $861,275 (+0.19%)       Perth $827,650 (+0.13%)       Hobart $744,795 (-1.04%)       Darwin $668,587 (+0.50%)       Canberra $1,003,450 (-0.84%)       National $1,033,285 (+0.03%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $741,922 (-0.81%)       Melbourne $497,613 (+0.04%)       Brisbane $536,017 (+0.73%)       Adelaide $432,936 (+2.43%)       Perth $438,316 (+0.13%)       Hobart $527,196 (+0.43%)       Darwin $346,253 (+0.25%)       Canberra $489,192 (-0.99%)       National $524,280 (-0.05%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,012 (-365)       Melbourne 14,191 (-411)       Brisbane 7,988 (-300)       Adelaide 2,342 (-96)       Perth 6,418 (-180)       Hobart 1,349 (+24)       Darwin 236 (-2)       Canberra 995 (-78)       National 43,531 (-1,408)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,629 (-186)       Melbourne 8,026 (-98)       Brisbane 1,662 (-33)       Adelaide 437 (-23)       Perth 1,682 (-56)       Hobart 209 (-4)       Darwin 410 (+7)       Canberra 942 (-14)       National 21,997 (-407)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $780 ($0)       Melbourne $600 ($0)       Brisbane $630 ($0)       Adelaide $600 ($0)       Perth $675 (+$5)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $690 (-$3)       National $660 (+$)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $595 (+$5)       Brisbane $630 ($0)       Adelaide $485 (+$5)       Perth $600 ($0)       Hobart $450 (-$20)       Darwin $550 (-$15)       Canberra $565 (+$5)       National $591 (-$1)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,001 (-128)       Melbourne 5,178 (-177)       Brisbane 3,864 (-72)       Adelaide 1,212 (+24)       Perth 1,808 (-26)       Hobart 372 (-8)       Darwin 113 (-16)       Canberra 534 (-16)       National 18,082 (-419)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 6,793 (-238)       Melbourne 4,430 (-58)       Brisbane 1,966 (-63)       Adelaide 334 (+12)       Perth 642 (+1)       Hobart 150 (-4)       Darwin 202 (-4)       Canberra 540 (-10)       National 15,057 (-364)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.53% (↓)     Melbourne 3.13% (↑)        Brisbane 3.39% (↓)       Adelaide 3.62% (↓)     Perth 4.24% (↑)      Hobart 3.84% (↑)        Darwin 5.44% (↓)     Canberra 3.58% (↑)      National 3.32% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.26% (↑)      Melbourne 6.22% (↑)        Brisbane 6.11% (↓)       Adelaide 5.83% (↓)       Perth 7.12% (↓)       Hobart 4.44% (↓)       Darwin 8.26% (↓)     Canberra 6.01% (↑)        National 5.86% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)        Hobart 1.4% (↓)     Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 27.0 (↑)      Melbourne 28.2 (↑)      Brisbane 29.1 (↑)      Adelaide 24.2 (↑)      Perth 33.4 (↑)      Hobart 30.3 (↑)      Darwin 36.2 (↑)      Canberra 27.0 (↑)      National 29.4 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 26.7 (↑)      Melbourne 27.3 (↑)        Brisbane 27.2 (↓)     Adelaide 24.4 (↑)      Perth 37.1 (↑)      Hobart 28.9 (↑)        Darwin 42.7 (↓)     Canberra 30.5 (↑)      National 30.6 (↑)            
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Why Inflation Around the World Just Won’t Go Away

Roughly a year into their campaign against high inflation, policy makers are some way from being able to declare victory

By TOM FAIRLESS
Tue, Jun 20, 2023 8:52amGrey Clock 5 min

FRANKFURT—The world’s central banks underestimated inflation last year. They are trying not to make the same mistake twice.

Across affluent countries, central bankers are sharply lifting inflation forecasts, penciling in further interest-rate increases and warning investors that interest rates will stay high for some time. Some have set aside plans to keep interest rates on hold.

Roughly a year into their campaign against high inflation, policy makers are some way from being able to declare victory. In the U.S. and Europe, underlying inflation is still around 5% or higher even as last year’s heady increases in energy and food prices fade from view. On both sides of the Atlantic, wage growth has stabilised at high levels and shows few signs of steady declines.

Indeed, the impact of the past year’s aggressive interest-rate increases seems to be ebbing in places, with signs that housing markets are stabilising and unemployment is resuming its decline. Growth softened in the eurozone, which has entered a technical recession, but the economic bloc still added nearly a million new jobs in the first three months of the year, while the U.S. economy has recently added some 300,000 jobs a month. Canada, Sweden, Japan and the U.K skirted recessions after growth unexpectedly rebounded. Business surveys suggest a relatively buoyant outlook.

All that puts major central banks in a tricky spot. They need to decide if inflation has stalled way above their 2% target, which could require much higher interest rates to fix, or if inflation’s decline is only delayed.

Get the call wrong, and they could push the rich world into a deep recession or force it to endure years of high inflation.

“It’s not an enviable situation that central banks are in,” said Stefan Gerlach, a former deputy governor of Ireland’s central bank. “You could make a major mistake either way.”

The difficulty is compounded by central banks having missed the rise of inflation in the first place, he said. These so-called policy errors hurt the standing of officials and might lead them to second-guess their decisions, as both sides of the inflation debate battle over why economists have been so wrong-footed on inflation.

The Federal Reserve last week held interest rates steady but signalled two more increases this year, which would lift U.S. rates to a 22-year high. Price inflation in core services excluding housing, a closely watched gauge of underlying price pressures, “remains elevated and has not shown signs of easing,” the Fed wrote in its semiannual monetary policy report last week.

Central banks in Australia and Canada recently surprised investors with interest-rate increases, the latter after a months-long pause. The European Central Bank last week increased interest rates by a quarter percentage point and indicated it would continue to push them higher at least through the summer. “We are not thinking about pausing,” ECB President Christine Lagarde said.

The Bank of England showed a readiness to pause its long series of interest rate rises since the start of the year, but it is now expected to raise its key interest rate for a 13th consecutive time this week as wage and consumer-price growth prove sticky. Investors anticipate five further rate increases that would take the bank’s key rate to 5.75%.

“We’ve still been going up, the ECB is still going up, everybody’s still going up, and the U.S. economy is still ripping along for the most part,” Fed Governor Christopher Waller said on Friday in a moderated discussion in Oslo.

British lawmakers have been running low on patience. The committee of lawmakers responsible for scrutinising the central bank Tuesday called for an independent review of its inflation forecasts, with a view to finding out what went wrong.

With economic signals mixed, central banks are entering a new phase: They need to wait long enough for past rate rises to filter through the economy without underestimating inflation again.

There are good reasons to wait. For one thing, the savings accumulated by households and businesses during the pandemic might have supported spending and countered the impact of rising borrowing costs. Businesses are highly profitable, which has enabled them to retain workers in a tough economy. As savings are depleted, spending will fall and inflation might resume its decline.

Interest-rate increases might also only just be starting to bite. Businesses and households might not respond when borrowing costs increase from zero to 1%, but they might cut spending more when rates rise to 5%. “It might be highly nonlinear,” said Gerlach.

Crucially, economies are still recovering from the pandemic. The delayed reopening of China’s economy supported growth around the world and might get a boost with fresh stimulus measures.

Many close-contact services such as restaurants and retail still have room to rebound following their huge plunge during the period of lockdowns and social distancing, according to Holger Schmieding, chief economist at Berenberg Bank. In the U.K., output of consumer-facing services is still 8.7% short of its prepandemic level, while the output of all other sectors is 1.7% higher.

Stronger spending on consumer-facing services will damp the impact of interest-rate rises for a time. But those effects won’t last long if economic growth continues to soften, which should reduce incomes and spending.

“The main point now is the transmission of our past monetary decisions, which are strongly reflected in financial conditions, but whose economic effects could take up to two years to be fully felt,” said François Villeroy de Galhau, who sits on the ECB’s rate-setting committee as Bank of France governor, on Friday.

Other considerations, however, suggest that inflation could remain sticky.

Some Fed officials believe that interest rates are hitting the economy more quickly than in the past, meaning that previous increases may already have worked through the system—and even more are needed.

Why might that be? Central bankers now state clearly what they are doing and what they intend to do in future, enabling investors to react immediately, Waller argued on Friday. In rate-hiking cycles as recently as the 1990s, the Fed didn’t even inform investors of its latest policy decisions. As a result, the yield on 2-year U.S. Treasury notes had increased by 200 basis points in March 2022, before the Fed increased rates at all, Waller said.

Moreover, new central-bank policies might damp the impact of interest-rate increases. Bundesbank economists argued in a recent paper that as rates rise, banks are earning more on their large stock of excess reserves parked with central banks, which reflect central banks’ large-scale asset-purchase programs. That helps banks to continue to extend loans.

Crucially, businesses and households might have adjusted to a new world of soaring prices by permanently changing their behaviour. If so, it could be very costly to return to the old world of low and stable inflation, requiring much higher interest rates, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

Households and businesses need to respond aggressively or risk deep losses in purchasing power. Businesses can easily justify increasing their prices further if everyone else is doing the same. Trade unions are fighting to compensate employees in ways not seen in decades and attracting new members.

These changes mean that central banks will need to act more forcefully, pushing economies into a deeper downturn to break the new inflationary mind-set, Kraemer said. The ECB, for example, might need to increase its policy rate to 5% from the current level of 3.5%, he said.

For now, investors appear to doubt the hawkish tone emanating from central banks. Stock markets are resilient on both sides of the Atlantic, and investors are pricing in interest-rate cuts in the U.S. and Europe next year. That may be a mistake, according to some economists.

“The bottom line is that inflation at 5% remains too high, and it is clear that markets are under appreciating the Fed’s commitment to get inflation back to 2%,” said Torsten Slok, chief economist at Apollo Global Management.



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Cocoa and Coffee Prices Have Surged. Climate Change Will Only Take Them Higher.

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Global prices for cocoa and coffee are surging as severe weather events hamper production in key regions, raising questions from farm to table over the long-term damage climate change could have on soft commodities.

Cultivating cocoa and coffee requires very specific temperature, water and soil conditions. Now, more frequent heat waves, heavy rainfalls and droughts are damaging harvests and crippling supplies amid ever growing demand from customers worldwide.

“Adverse weather conditions, mostly in the Southern Hemisphere, have played an important role in sending several food commodities sharply higher,” said Ole Hansen , head of commodity strategy at Saxo Bank.

The spikes in prices are a threat to coffee and chocolate makers across the globe.

Swiss consumer-goods giant Nestlé was able to pass only a fraction of the cocoa price increase to customers last year, and it may need to adjust pricing in the future due to persistently high prices, a spokesperson said.

Italian coffee maker Lavazza reported revenue of more than $3 billion for last year, but said profitability was hit by soaring coffee bean prices, particularly for green and Robusta coffee, and its decision to limit price increases.

Likewise, chocolatier Chocoladefabriken Lindt & Spruengli said in its 2023 results that weather and climate conditions played a major role in the global shortage of cocoa beans that led to historically high prices. The company had to lift the sales prices of its products and said it would need to further raise them this year and next if cocoa prices remain at current levels.

Hershey ’s chief executive, Michele Buck , said in February that historic cocoa prices are expected to limit earnings growth this year, and that the company plans to use “every tool in its toolbox,” including price hikes, to manage the impact on business.

In West Africa, where about 70% of global cocoa is produced, powerhouses Ivory Coast and Ghana are facing catastrophic harvests this season as El Niño—the pattern of above-average sea surface temperatures—led to unseasonal heavy rainfalls followed by strong heat waves.

Extreme heat has weakened cocoa trees already damaged from heavy rainfall at the end of last year, according to Morningstar DBRS’s Aarti Magan and Moritz Steinbauer. The rain also worsened road conditions, disrupting cocoa bean deliveries to export ports.

The International Cocoa Organization—a global body composed of cocoa producing and consuming member countries—said in its latest monthly report that it expects the global supply deficit to widen to 374,000 metric tons in the 2023-24 season, from 74,000 tons last season. Global cocoa supply is anticipated to decline by almost 11% to 4.449 million tons when compared with 2022-23.

“Significant declines in production are expected from the top producing countries as they are envisaged to feel the detrimental effect of unfavorable weather conditions and diseases,” the organization said.

While the effects of climate change are severe, other serious structural issues are also hitting West African cocoa production in the short- to medium-term. Illegal mining poses a significant threat to cocoa farms in Ghana, destroying arable land and poisoning water supplies, and the problem is becoming increasingly relevant in the Ivory Coast, according to BMI.

The issues are being magnified by deforestation carried out to increase cocoa production. Since 1950, Ivory Coast has lost around 90% of its forests, while Ghana has lost around 65% over the same period. This has driven farmers to areas less suited to cocoa cultivation like grasslands, increasing the amount of labor required and bringing further downside risks to the harvest, the research firm said.

The Ivory Coast’s cocoa mid-crop harvest—which officially starts in April and runs until September—is expected to fall to 400,000-500,000 tons from 600,000-620,000 tons last year, with weather expected to play a crucial role in shaping the market balance for the season, ING analysts said, citing estimates from the country’s cocoa regulator. Ghana’s cocoa board also forecasts a slump in the harvest for this season to as low as 422,500 tons, the poorest in more than 20 years, according to BMI.

Neither regulator responded to a request for comment.

Meanwhile, extreme droughts in Southeast Asia—particularly in Vietnam and Indonesia—are resulting in lower coffee bean harvests, hurting producers’ output and global exports. Coffee inventories have recovered somewhat in recent weeks but remain low in recent historical terms. Robusta coffee has seen a severe deterioration in export expectations, while Arabica coffee is expected to return to a relatively narrow surplus this year, said Charles Hart, senior commodities analyst at BMI.

The global coffee benchmark prices, London Robusta futures, are up by 15% on-month to $3,825 a ton. Arabica coffee prices have also surged 17% over the last month to $2.16 a pound in lockstep with Robusta—its highest level since October 2022. Cocoa prices have more than tripled on-year over these supply crunch fears, and risen 49% in the last month alone to $10,050 a ton.

“Cocoa trees are particularly sensitive to weather and require very specific conditions to grow, this means that cocoa prices are especially vulnerable to extreme weather events, such as drought and periods of intense heat, as well as the longer-term impact of climate change,” said Lucrezia Cogliati, associate commodities analyst at BMI.

Cogliati said global cocoa consumption is expected to outpace production for the third consecutive season, with intense seasonal West African winds and plant diseases contributing to significant declines.

Consumers hoping for a return to cheaper prices for life’s little luxuries in the midterm may also be in for a bitter surprise.

“There is no sugarcoating it—consumers will ultimately be faced with higher chocolate prices, products that contain less chocolate, and/or shrinking product sizes,” Morningstar’s Magan and Steinbauer said in a report.

“We anticipate consumers could respond by searching widely for promotional discounts, trading down to value-based chocolate and confectionary products from premium products, switching to private-label from branded products and/or reducing volumes altogether.”

The record-breaking rally for cocoa and coffee is likely more than just a flash in the pan, according to Citi analysts, as adverse weather conditions and strong demand trends are likely to support prices in the months ahead. The U.S. bank estimates Arabica coffee futures in a range of $1.88-$2.15 a pound for the current year, but said projections could be lifted if the outlook for 2024-25 tightens further.

At the heart of it all, climate change is set to play a major role, as the impact of extreme weather events could exacerbate the pressure on cocoa and coffee supplies, according to market watchers.

“I don’t expect prices to remain at these levels, but if we continue to see more unusual weather as a result of global warming then we certainly could see more volatility in terms of cocoa yields going forward, which could impact pricing,” said Paul Joules, commodities analyst at Rabobank.

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