Author: Consultant

Supply chain issues worsening, report says, pushing inflation higher: How your wallet could be impacted

As inflation continues to surge across the U.S., many consumers report that they’ve struggled over the past year with price increases as well as shortages in common goods, a new report from business intelligence company Morning Consult showed.

Inflation reached a new 40-year high in March for the fifth straight month, according to Bureau of Labor Statistics data, rising to 8.5% annually. Morning Consult’s report found that consumers are especially worried about rising energy and gas prices, as both continue to put upward pressure on the overall cost of living.

It added that consumers in March reported the highest level of supply chain disruptions since the company began tracking such information and that 41% of their prospective purchases were hindered by supply shortages within the month.

“While bottlenecks have loosened for a handful of product types due to fortified supply chains and cooling goods demand, consumers reported increasing difficulty obtaining products in categories such as grocery, housing-related items and vehicles,” the report stated. “These categories account for a relatively large share of spending, in turn playing a major role in driving up overall inflation. The impact of the most severely constrained categories overshadows any relief consumers may feel from abating shortages of other product types.”

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NEW VEHICLE PRICES DROP FOR THIRD STRAIGHT MONTH, BUT DRIVERS STILL PAYING OVER STICKER PRICE: DATA

How American consumers have responded to mounting inflation

Morning Consult’s report found that consumers in America have adjusted their purchasing habits as inflation continues to rise. It said that when it came to considering major purchases like a car, house or furniture last month, the majority of people chose not to go through with them. For housing, 72% of consumers opted not to make a purchase, 59% for furniture and 71% for a new vehicle.

“Among U.S. adults who considered making various purchases in March, a majority opted not to buy large, expensive items like homes or new vehicles, whereas nearly everyone who sought to obtain gas, food or personal care products followed through with those purchases,” the report stated.

White House Press Secretary Jen Psaki said during an April 27 press briefing that President Biden has taken a number of steps to address the elevated costs, including extending the current student loan pause, which is set to expire on August 31. She said that Biden’s plan to address inflation “has many different components” and also includes proposals to lower child care, health care and prescription drug costs.

“While unavailability continues to hinder grocery purchases, U.S. adults who opted out of purchasing various items were most likely to cite high prices as the reason,” Morning Consult stated in its report. “Some necessities without natural substitutes – like gasoline – are purchased regardless of sticker shock. But while drivers have little choice but to accept the fuel price hikes, a growing share are curbing expenses by driving less.”

Interest rate trajectory will depend heavily on housing market, Bank of Canada deputy governor says

The Bank of Canada needs to keep raising interest rates to tackle runaway inflation, deputy governor Toni Gravelle said on Thursday – although how high rates go will depend on how the housing market responds to rising borrowing costs.

Mr. Gravelle said the central bank’s policy rate, which has been at 1 per cent since April, is still “too stimulative.” Bank officials have said they intend to get the benchmark rate into a “neutral” range – which neither stimulates the economy nor holds it back – of between 2 per cent and 3 per cent relatively quickly.

Whether the central bank pushes its policy rate above the neutral range will depend in large part on the real estate sector, Mr. Gravelle said in a speech hosted by the Association des économistes québécois in Montreal.

“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” Mr. Gravelle said, according to the English version of the speech.

“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise.”

He noted that the Canadian household debt-to-income ratio hit a record 186 per cent by the end of 2021.

There are some signs that Canada’s hottest housing markets have already begun to cool in response to rising interest rates. Home sales in Toronto dropped 27 per cent in April, and an index that measures home prices in the city showed the first monthly decline since October, 2020.

As interest rates rise, the economy may already be descending from its peak

Mortgage stress test rules may change as interest rates climb and housing market cools, says regulator

On the flipside, Mr. Gravelle said the housing market may prove to be more resilient than the bank expects, which could encourage it to move interest rates above 3 per cent.

“Specifically, we could also get stronger demographic demand from immigration. Or some of the increase in housing demand we saw during the pandemic – for bigger housing and in suburban locations – could persist much more than we have factored into our projection,” he said.

Mr. Gravelle’s speech offered the clearest explanation to date about what senior bank officials will be watching as they determine the pace and trajectory of interest-rate hikes. He said they will also be paying close attention to commodity prices and shifts in consumer spending.

Simon Harvey, head of foreign exchange analysis with Monex Canada, said the housing market is more likely to be a constraint than a tailwind to interest rates moving higher.

“When I’m looking at house price growth, price-to-income ratios, it just doesn’t add up. At some point there will be a cooling effect from an increase in interest rates,” he said in an interview.

The speech, titled “The Perfect Storm” focused largely on the differences between the current period of high inflation and the 1970s and 1980s, when central bankers lost control of inflation and had to rein it in at the cost of a painful recession.

Both periods involved supply-side shocks. In the 1970s, jumps in the price of oil sent global consumer prices soaring. Today, supply chain disruptions because of COVID-19 and a commodity price spike caused by the war in Ukraine are pushing consumer costs higher.

Despite some similarities, Mr. Gravelle isn’t expecting a rerun of the kind of “stagflation” seen in the 1970s. Stagflation involves high inflation, high unemployment and low economic growth.

“Given where we are now, we don’t see the stagnant part of stagflation – quite the opposite,” he said.

Unemployment is at a historic low and the bank expects the Canadian economy to grow 4.2 per cent this year and 3.2 per cent next year. Moreover, the global commodity price shock that’s squeezing consumers actually helps Canadian energy companies and farmers – although higher oil prices aren’t expected to spur the same level of investment as in previous commodity cycles.

Mr. Gravelle noted several structural features that make today different from the 1970s. Employment contracts are less likely to be indexed to inflation today, reducing the chance a wage-price spiral will develop. The central bank also has built up credibility controlling inflation over the past 30 years, which should help keep inflation expectations anchored, he said.

Mr. Harvey of Monex said that talk of stagflation is more appropriate for countries and regions that are more directly exposed to the economic fallout of Russia’s invasion of Ukraine.

“We’re talking about stagflationary environments in Europe, but not necessarily in North America, where there is strong growth momentum and a very constructive labour market outlook,” Mr. Harvey said.

More than $200 billion erased from entire crypto market in a day as sell-off intensifies

• The price of bitcoin plunged below $26,000 on Thursday, hitting its lowest level in 16 months.
• Ether, the second-biggest digital currency, tanked below $2,000 per coin.
• The collapse of stablecoin terraUSD has led to fears of a broader market contagion.

https://www.cnbc.com/2022/05/12/bitcoin-btc-price-falls-below-27000-as-crypto-sell-off-intensifies.html

Wholesale inflation rose 11% in April as producer prices keep accelerating

• Producer prices at the wholesale level rose 11% over the past year and 0.5% in April alone, the Bureau of Labor Statistics reported Thursday.
• Weekly jobless claims were little changed, but continuing claims fell to their lowest level since January 1970.

https://www.cnbc.com/2022/05/12/wholesale-inflation-rose-11percent-in-april-as-producer-prices-keep-accelerating.html

OPEC cuts 2022 world oil demand forecast again due to impact of war in Ukraine, rising inflation

OPEC on Thursday cut its forecast for growth in world oil demand in 2022 for a second straight month, citing the impact of Russia’s invasion of Ukraine, rising inflation and the resurgence of the Omicron coronavirus variant in China.

In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) said world demand would rise by 3.36 million barrels per day (bpd) in 2022, down 310,000 bpd from its previous forecast.

The Ukraine war sent oil prices briefly above $139 a barrel in March, the highest since 2008, worsening inflationary pressures. OPEC has cited suggestions that China, with strict COVID lockdowns, is facing its biggest demand shock since 2020 when oil use plunged.

“Demand in 2022 is expected to be impacted by ongoing geopolitical developments in Eastern Europe, as well as COVID-19 pandemic restrictions,” OPEC said in the report.

Nonetheless, OPEC still expects world consumption to surpass the 100 million bpd mark in the third quarter, and for the 2022 annual average to just exceed the pre-pandemic 2019 rate.

OPEC cited rising inflation and continued monetary tightening, and lowered this year’s economic growth forecast to 3.5 per cent from 3.9 per cent, adding upside potential was “quite limited.”

“It may come from a solution to the Russia and Ukraine situation, fiscal stimulus where possible, and a fading pandemic, in combination with a strong rise in service sector activity,” OPEC said.

Oil extended an earlier decline after the report was released, trading further below $106.

OPEC and its allies which include Russia, known as OPEC+, are unwinding record output cuts put in place during the worst of the pandemic in 2020 and have rebuffed Western pressure to raise output at a faster pace.

At its last meeting, OPEC+ swerved the Ukraine crisis and stuck to a previously agreed plan to boost its monthly output target by 432,000 bpd in June.

OPEC+ has been undershooting the increases due to underinvestment in oil fields in some OPEC members and, more recently, losses in Russian output as a result of sanctions and buyer avoidance.

The report showed OPEC output in April rose by 153,000 bpd to 28.65 million bpd, lagging the 254,000 bpd rise that OPEC is allowed under the OPEC+ deal.

The growth forecast for non-OPEC supply in 2022 was reduced by 300,000 bpd to 2.4 million bpd. OPEC cut its forecast for Russian output by 360,000 bpd and left its U.S. output growth estimate largely unchanged.

OPEC expects U.S. tight oil supply to rise by 880,000 bpd in 2022, unchanged from last month, although it said there was potential for further expansion later in the year.

SNC-Lavalin gets a deferred prosecution agreement – a first in Canada

Quebec prosecutors have received court approval for a deferred prosecution agreement with Canadian engineering giant SNC-Lavalin Group Inc., the first such deal since the new legal mechanism became law in 2018.

Judge Éric Downs of the Quebec Superior Court sanctioned the agreement in a verbal decision on Wednesday afternoon, thereby settling criminal charges against the company related to a bridge contract in Montreal two decades ago. The judge said he would publish a detailed written decision later.

“We’ve reached a point now where this company has an integrity program that’s exemplary,” prosecutor Francis Pilotte said. “There really was no reason not to offer them an agreement. [The law] was made for cases like this.”

SNC-Lavalin struck the remediation agreement with Quebec’s office of criminal prosecutions, known as the Directeur des poursuites criminelles et pénales (DPCP), to resolve charges laid last fall against two company entities. The pact required court approval.

Such deals, better known as deferred prosecution agreements, allow companies to acknowledge responsibility and avoid a trial in exchange for paying a fine and agreeing to outside independent oversight. Already present in several other countries, such as the United States and the U.K., the legal mechanism was introduced by the federal government in 2018 as part of an effort to widen its options in fighting corruption and other white-collar crime.

As part of a three-year agreement, SNC-Lavalin will pay a penalty of $29.6-million. It will also undergo third-party monitoring of its ethics and compliance systems by an outside law firm for three years.

“This agreement is in the public interest,” said François Fontaine, a lawyer with Norton Rose representing SNC-Lavalin. “SNC is getting a deal here because it is an important company and there is no reason to punish all of its stakeholders for the actions of a few individuals.”

Quebec prosecutors last September charged two of the company’s business entities – SNC-Lavalin Inc. and SNC-Lavalin International Inc. – and former SNC vice-presidents Normand Morin and Kamal Francis in connection with a long-standing RCMP investigation into bribes paid on a $128-million contract to refurbish Montreal’s Jacques Cartier bridge in 2002.

Michel Fournier, the former head of the Federal Bridge Corp., pleaded guilty in 2017 to fraud-related charges for accepting more than $2.3-million in kickbacks from SNC in the Jacques Cartier bridge case and laundering the funds. He was sentenced to 51/2 years, and has since received full parole. The police probe then focused on who arranged the bribes.

The SNC units and the two former executives were charged with forgery, conspiracy to commit forgery, fraud, conspiracy to commit fraud, fraud against the government and conspiracy to commit fraud against the government, the RCMP say. The two men are both over 70.

Mr. Morin’s lawyer said in court on Tuesday that his client contests the bulk of the statement of facts SNC-Lavalin and prosecutors agreed to, and said they should not be made public. He urged the judge to be “the guardian of fairness of this process.” Arguments on this will be heard on Thursday.

Lawyers and other legal experts in Canada are watching SNC’s case closely to see how prosecutors apply the law and how the court manages the proceedings, including how it will balance the rights of the two men still to face trial. Other companies are expected to seek similar deals.

What the Quebec Superior Court decides in this case will affect future agreements submitted for approval, said Jennifer Quaid, an associate professor of law at the University of Ottawa. “The debate in court today highlights the tension between transparency and public accountability on the one hand and the inevitable compromises prosecutors have to make to reach settlements with business organizations,” she said.

Quebec prosecutors have said SNC co-operated with authorities during police searches and voluntarily provided relevant information afterward, which contributed to the decision to extend an offer to negotiate a deal. The two former managers cannot benefit from a deferred prosecution agreement because such arrangements do not apply to individuals.

SNC was denied a deferred prosecution agreement two years ago in a separate case in which it was charged with violating Canada’s Corruption of Foreign Public Officials Act and fraud related to its business dealings in Libya when Moammar Gadhafi was in power. Kathleen Roussel, director of federal prosecutions, told The Globe and Mail in 2020 that a deferred prosecution agreement in that case was inappropriate because of the “severity and breadth” of the offence.

SNC undertook an intense lobbying campaign with the federal government to get a deferred prosecution agreement in the Libya case. Allegations that Prime Minister Justin Trudeau and other members of his government improperly pressed then-justice minister and attorney-general Jody Wilson-Raybould to order a settlement engulfed the government in crisis for weeks.

SNC struck a deal with prosecutors in December, 2019, in which the company’s construction division pleaded guilty to a single charge of fraud and the potentially more damaging corruption charge was dropped. The company agreed to pay a $280-million fine and received a three-year probation order, which includes oversight by an independent monitor. The Quebec judge who approved the agreement called it “reasonable” and said that, without such plea deals, Canada’s justice system “would collapse under its own weight.”

The Jacques Cartier bridge investigation, dubbed Project Agrafe (staple), has long been a legal risk for SNC. The company has acknowledged the probe in corporate filings, adding that other investigations into its past business dealings may be continuing, including in Algeria.

Sun Life beats first-quarter core profit estimates but falls from year ago on U.S., Asia declines

Sun Life Financial on Wednesday beat analyst estimates for first-quarter core profit, which fell from a year earlier because of higher claims in its U.S. business and the impact of COVID-19 restrictions on some Asian markets.

Underlying profit was $843-million, or $1.44 a share, in the three months ended March 31, from $850-million, or $1.45, a year earlier. Analysts had expected $1.41 a share.

Reported net income declined to $858-million, or $1.46, from $937-million, or $1.59, a year earlier.

Manulife misses estimates for first-quarter core profit

Manulife Financial on Wednesday missed estimates for first-quarter core profit, which fell from a year earlier as COVID-19 disrupted new business activities in multiple markets across Asia.

Canada’s largest insurer reported core earnings of $1.5-billion, or 77 cents a share, in the three months ended March 31, compared with $1.6-billion, or 82 cents a share, a year earlier.

Analysts on average had expected the company to report earnings of 82 US cents a share, according to IBES data from Refinitiv.

Net income attributable to shareholders rose to $2.97-billion, or 1.50 cents a share, from $783-million, or 38 cents a share, a year earlier.

Crescent Point Energy reports $1.18-billion first-quarter profit, raises dividend

Crescent Point Energy Corp. CPG-T -2.31%decrease raised its quarterly dividend as it reported first-quarter net income of $1.18-billion, boosted by a reversal of a non-cash impairment charge related to the rise in energy prices.

The company said it will increase its quarterly dividend to 6.5 cents per share, up from 4.5 cents per share.

The increased payment to shareholders came as Crescent Point said it earned $2.03 per diluted share for the quarter ended March 31, up from a profit of $21.7-million or four cents per diluted share a year ago.

Crescent Point said its adjusted earnings from operations amounted to 41 cents per diluted share for the quarter, up from 28 cents per diluted share a year earlier.

Oil and gas revenue for the quarter totalled $978.4-million, up from $547.5-million in the same quarter last year.

Average daily production was 132,788 barrels of oil equivalent per day, up from 119,384 boe/d in the same quarter last year, while the company’s average selling price was $91.43 per barrel of oil equivalent, up from $58.65 a year ago.