LIVE – Updated at 13:45
Cost of living squeezed as Premier Inn owner sees rising costs and Centrica warns gas prices won’t ease soon.
Shelter (housing costs), and used cars and trucks were the largest contributors to the jump in US inflation last month, the Labor Department says.
Food prices also kept rising, up another 0.5% in December.
But….the energy index declined in December, ending a long series of increases. It dropped by 0.4% last month, as the indexes for gasoline and natural gas both decreased. That could bring some relief to motorists.
But over the last 12 months, energy prices have surged 29.3%, while food prices have jumped 6.3% on average.
Core inflation in the US, which strips out food and energy, rose by 5.5% per year in December – as Victoria Scholar, head of investment at interactive investor, shows:
US inflation hit 7% in December, highest since 1982
Just in: US inflation has jumped to 7% as the cost of living squeeze in America intensified.
Consumer prices rose by 0.5% in December along, lifting the annual inflation rate to 7.0%.
That’s the highest reading since 1982, during Ronald Reagan’s first term as US president.
More to follow!
IEA chief accuses Russia of undermining Europe’s gas supplies
The head of the International Energy Agency has accused Russia of undermining gas supplies to Europe, at a time when “geopolitical tensions” between Moscow and the West are rising.
Fatih Birol said today that the Paris-based energy watchdog believes Russia is contributing to Europe’s gas shortage, which pushed up wholesale prices to record levels last year.
Birol argued that Russia could increase deliveries to Europe by at least one-third through abundant spare capacity.
Russia, though, has denied using gas as a lever over the West, at a time when tensions over Ukraine have risen.
Reuters has the details:
“We believe there are strong elements of tightness in Europe’s gas markets due to Russia’s behaviour,” Birol told reporters, noting “today’s low Russian gas flows to Europe coincide with heightened geopolitical tensions over Ukraine”.
Russian gas company Gazprom reduced exports to Europe by 25% year-on-year in the fourth quarter of 2021 despite high market prices and reduced spot sales while other exporters boosted them, Birol said.
“The current storage deficit in the European Union is largely due to Gazprom,” he added. “The low levels of storage in company’s EU-based facilities account for half of the EU storage deficit although Gazprom facilities only constitute 10% of the EU’s total storage capacity.”
Birol also suggested that the high energy prices and consumer pain created by the gas crunch makes the case for future mandatory storage quotas for European companies.
Full story: Whitbread to offset rising costs with higher Premier Inn room rates
Whitbread, the owner of the Premier Inn hotel chain, is warning that it expects cost inflation for the hospitality sector to reach between 7% and 8% over the coming months.
Higher labour costs, rising energy bills and increased construction costs for its new hotels are putting pressure on the FTSE 100 company, according to Whitbread’s chief executive, Alison Brittain.
The group said it expected to offset these increased costs through charging higher rates for rooms in its 800 Premier Inn hotels, as well as through cost efficiencies and by growing its estate.
The company, which also owns restaurant chains including Beefeater, Bar + Block, and Brewers Fayre, said higher levels of inflation would affect about £1.4bn of its cost base until April 2023.
Oil at two-month highs
Oil is heading back towards multi-year highs this morning, in another sign of inflationary pressures.
Brent crude, the international benchmark sourced from the North Sea, has risen to $84.20 per barrel, approaching the three-year high over $86/barrel set last October.
US crude is approaching $82/barrel – it hit seven-year highs last autumn, driven by rising demand, and the slow production increases coordinated by the Opec+ group.
Shares in Whitbread have nudged a little higher today, up 0.4%, and on track to close at a two-month high.
Neil Wilson of Markets.com says:
Whitbread shares were steady after it reported a solid Q3 marked by ‘resilience’ to Omicron.
Total UK sales rose 3.1% vs last year, but lockdowns are wrecking German occupancy rates, which have declined to 36% in the last 6 weeks from 60% in the third quarter.
Whitbread faces “a tough gig” until more corporate travel returns, and weddings, and stag and hen dos really pick up properly, he adds.
One third of UK consumers plan to reduce their household spending this year as inflation eats into their income.
A survey of 3,000 UK consumers found that 32% expect to cut back on their household spending in 2022, while just 9% plan to spend more.
With prices of staple goods and services such as food and energy rising, people are planning to cut discretionary spending such as eating out (55%), clothing (50%) and takeaways (49%). A third plan to spend less on holidays, while 26% aim to cut back on technology.
The survey also found that 26% of consumers hadn’t managed to save during the pandemic – a reminder that not everyone put money aside during lockdowns.
Linda Ellett, head of consumer markets, leisure and retail at KPMG UK, said the cost-of-living squeeze is hitting many households:
“Faced with inflationary pressures, some businesses are mulling upping their prices, or have done so. But they will be mindful that they are operating in a marketplace where consumers are themselves having to tighten the purse strings.
“The competition for share of wallet in 2022 is heating up. It’s vital that businesses double-down on their productivity, on the value and efficiency of their supply chain, and assess whether new products or offers can give them an edge in this landscape.”
Lawsuit aiming to break up Facebook group Meta can go ahead, US court rules
The US competition watchdog can proceed with a breakup lawsuit against Facebook’s owner, a federal judge has ruled.
Mark Zuckerberg’s Meta, the parent of Facebook, Instagram and WhatsApp, had asked a court to dismiss an antitrust complaint brought by the Federal Trade Commission (FTC) for the second time.
However, Judge James Boasberg said on Tuesday that the FTC’s revised lawsuit should be allowed to proceed.
Boasberg, of the US District Court for the District of Columbia, wrote:
“Ultimately, whether the FTC will be able to prove its case and prevail at summary judgment and trial is anyone’s guess.
The court declines to engage in such speculation and simply concludes that at this motion-to-dismiss stage, where the FTC’s allegations are treated as true, the agency has stated a plausible claim for relief.”
Matt Britzman, equity analyst at Hargreaves Lansdown, says Whitbread is making a ‘continued recovery’ despite the impact of Omicron, as price rises loom:
It’ll come as welcome news to investors that Omicron doesn’t look to be having a major impact on demand for hotel rooms in the UK. Fresh testing requirements for overseas travel is likely to have helped here, with would be travellers forced to find a break closer to home.
The same can’t be said for the German hotels, which are being hit hard by restrictions and saw occupancy fall to 36% in the 6 weeks to 6 January. For now though, the region only makes up a very small part of the business, but it’s where a lot of the group’s growth prospects are pinned.
Food and beverage sales haven’t been quite as resilient, with restrictions across Scotland, Wales and Northern Ireland acting as headwinds. New menus and marketing strategies are being deployed in an attempt to breathe new life into this part of the business– it remains to be seen whether that’ll be enough to get back on track.
Inflation across the wider sector is expected to pick up into 2022, which’ll provide a challenge for many businesses and Whitbread won’t be immune. The company is hoping to be able to offset the majority of this with cost savings and pricing, and that’s where having a strong brand helps.”
The FT has a good take:
The majority of the impact will come from higher wage costs, said chief executive Alison Brittain, as hospitality businesses fight to attract and retain staff, many of whom left the sector due to uncertainty around the return of restrictions and lockdowns.
Whitbread raised employee wages by 5 per cent in October and Brittain said that for staff on hourly rates, the company “probably will go again on pay as we come into the spring”.
She also flagged “highly inflationary” energy bills and rising construction costs as other major sources of pressure.
Whitbread also hopes that cost cuts and new openings will mitigate sector inflation of 7-8% this year, alongside higher room rates.
FTSE 100 hits near two-year high
In the City, the FTSE 100 index has hit its highest level in almost two years.
The blue-chip index hit 7551 points this morning, up 0.8%, its highest level since late January 2020 — before the pandemic hit global markets.
Mining stocks are leading the risers, with Anglo American (+3.8%), Antofagasta (+3.5%) and BHP Group (+3.5%) benefitting from optimism over the global recovery. The jump in the oil price has also lifted energy producers.
Investors look to be regaining their confidence after a choppy start to 2022, explains Russ Mould, investment director at AJ Bell:
“Driving confidence were remarks by Federal Reserve chairman Jay Powell that the central bank would do everything it could to stop inflation running out of control.
The top FTSE 100 six risers were all metal producers, and this sector is a bellwether for global economic activity.
“Risk appetite appears to have returned given how more stodgy companies like BT, Reckitt Benckiser and Imperial Brands were among the fallers on the FTSE. Instead, investors were more interested in bidding up some of the tech plays which have been beaten up recently, including Scottish Mortgage.
“Also in vogue were a slew of consumer-facing companies riding high after upbeat trading statements. These included Sainsbury’s which upgraded its profit guidance, and Whitbread which said it continued to trade ahead of the market.”
The FTSE 100 is still below its record high of 7903 points set in 2018, unlike the US and major European indices which hit record highs last year.
In a busy morning for retail news, homewares and furniture retailer Dunelm has also lifted its profit forecasts.
Dunelm reported that it had a record quarter with strong performance across all channels. Sales grew 13% in the 13 weeks to Christmas Day, and were 26% higher than pre-pandemic levels in 2019.
Dunelm had benefitted from the boom in online shopping since Covid-19. Digital sales have doubled compared to two years ago, while it also saw “particularly encouraging” store growth.
Chief executive Nick Wilkinson said Dunelm’s “fantastic colleagues and supplier partners” had kept customers served despite the challenges of Covid and industry-wide supply chain disruption
“Whilst there are several macro uncertainties to be navigated, we feel well placed to continue to deliver profitable growth across all channels and grow market share as the 1st choice for home for UK homelovers.”
Booming demand for high-end homes lifts Savills profits
Estate agents group Savills has seen ‘extraordinarily strong’ demand in recent weeks, as it lifts its profit forecasts this morning.
Savills told the City this morning that its full year performance will be “very significantly ahead” of expectations, including a boom in expensive homes.
Since the trading update on 9th November 2021, the Group has experienced an extraordinarily strong final trading period, particularly in the UK and Asia Pacific regions alongside improved performances in Continental Europe and the Middle East, and North America; both of which have more than eliminated the losses of 2020.
Savills says it completed much more commercial capital transactions and prime residential (high-end) sales than expected, including in London.
The UK prime residential market continued to perform exceptionally strongly through the last quarter and volumes in the Prime Central London market clearly began to improve. Currently there is a definite shortage of sale stock, so despite outperformance in 2021, our expectation of a moderation of activity in 2022 remains intact.
Sainsbury’s lifts profit guidance after ‘strong’ Christmas cheer
British supermarket group Sainsbury’s profits this year will beat expectations, after stronger-than-expected food sales over Christmas
Sainsbury’s raised its full-year profit forecast for the year to April this morning, saying that it had seen strong sales in the crucial Christmas period.
Sainsbury’s reported that stronger than expected grocery volumes, driven in part by increased in-home grocery consumption, helped to offset the jump in cost inflation.
Group sales in the last quarter didn’t match last year, when the pandemic led to a boom at grocers. Total retail sales (excluding fuel) were down 5.3% in the last 16 weeks.
Grocery sales dropped 1.1% in the quarter, but did grow 0.1% in the six-week Christmas period, or by 0.8% if you account for Sainsbury’s closing its stores on Boxing Day.
General Merchandise and Clothing sales struggled, down year-on-year in the last quarter.
Sainsbury’s now expects to report underlying profit before tax of at least £720m in the financial year to March 2022. That’s up from previous guidance of “at least” £660m, and an improvement on the £356m a year ago.
Sainsbury’s CEO Simon Roberts said it was challenging to ensure that products were available for Christmas, given the supply chain problems:
“We were bold in our plan for product, value, innovation and service and delivered volume growth ahead of the market. We delivered our best value food this Christmas, launched our lowest ever priced Christmas dinner heading into the key Christmas shopping week and we had our biggest ever New Year.
Customers also treated themselves and new Taste the Difference products in party food, desserts, wines and spirits were really popular and we had record sales of champagne and sparkling wines. Offering great value will be more important than ever this year and we have just launched our bold new Sainsbury’s Quality Aldi Price Match campaign, which targets 150 fresh products that customers buy most often.
Shares in Sainsbury’s have jumped almost 2%.
Full story: Centrica boss says high energy bills could last two years
The boss of the UK’s largest energy supplier has said rocketing energy prices, which are adding to the soaring cost of living for British households, could last for as long as two years, my colleague Joanna Partridge writes.
Chris O’Shea, the chief executive of British Gas owner Centrica, said the energy market “suggests that high gas prices will be here for the next 18 months to two years”.
O’Shea told the BBC there was no reason to think that gas prices would start to fall again “any time soon”.
The rising global demand for gas is partly being driven by the energy transition, according to O’Shea, as countries move away from reliance on coal and oil.
“As we move towards net zero, gas is a big transition fuel, so as you turn off coal-fired power stations in other countries, maybe there is more demand for gas,” O’Shea said.
“There isn’t an abundance of gas that you can just turn on quickly, so I can’t say that this will be done in six months, or nine months, or a year.”
However, O’Shea said he did not believe that increasing the domestic supply of gas from the North Sea would help to solve the energy crisis.
“I’m not sure an increase in UK supply would have brought the price down from £3 a therm, as it was in December, from 50p as it was a year ago.
Here’s the full story:
JD Sports Fashion has joined Sainsbury’s in lifting its full-year profit forecast ahead of market expectations, after seeing strong sale of sportswear brands.
JD saw from robust demand during the Black Friday and Christmas period, and also benefitted from America’s fiscal stimulus package, which it estimates contributed up to £100m of profits.
Following “sustained positive” consumer demand, JD now expects pre-tax profit of at least £875m in the year to 29 January 2022, ahead of current market expectations of £810m.
CEO Peter Cowgill has joined the chorus of politicians and business leaders urging chancellor Rishi Sunak to rethink looming tax rises, the Evening Standard reports.
“The imposition on businesses this year, at a time when you’ve got such wage inflation in any event, is pretty strong. You’ve got the imposition of national insurance and you’ve got the increase in corporation tax as well. That impacts on retained profits for investment.
“I would certainly question it, very much so”
Premier Inn owner Whitbread warns cost inflation is surging
Premier Inns owner Whitbread has warned that cost inflation could hit 8% in the coming year.
Whitbread, which also runs pub chains including Beefeater and Brewers Fayre, says that costs are expected to be higher than average. It currently expects sector inflation rate in the year to April 2023 to run at around 7-8%.
Whitbread expects to ‘largely offset’ this inflation surge, through cost efficiencies, estate growth and higher prices (average room rates) — suggesting consumers will see an impact.
Hospitality firms have been hit by a surge of costs in recent months, including higher energy bills and supplies, and rising wages.
In a third-quarter trading update, chief executive Alison Brittain said Whitbread achieved a “strong performance” in the UK in the last quarter, but that conditions were challenging in the pub and restaurant sector:
High levels of leisure demand and improving business demand helped maintain like-for-like accommodation sales ahead of pre COVID-19 levels.
UK accommodation sales remained resilient in December, albeit softening as we moved through the month and into the festive period as a result of the onset of the Omicron COVID-19 variant. Whilst our hotel performance was excellent, the value pub and restaurant sector in which we operate remains more challenging.
Whitbread also says it has seen “resilient trading” in the UK despite the onset of the Omicron COVID-19 variant. Total UK accommodation sales grew 5.1% in the last six weeks, compared to pre-pandemic levels.
But total food and beverage sales are down 17.2% in the six weeks to 6th January, with recent weeks “adversely impacted by the Omicron variant and increased Government restrictions on eating-out in Scotland, Wales and Northern Ireland”, it adds.
Sainsbury’s profit upgrade: What the experts say
Richard Lim, CEO at Retail Economics, says Sainsbury’s benefitted from customers prioritising Christmas get-togethers despite rising anxieties about the virus.
The wave of cancellations that hit hospitality firms last month also helped, as Omicron fears led people to stay (and eat) at home.
Food sales held up well against the previous year (given the restrictions in 2020) as more family gatherings took place and consumers indulged across premium lines.
“To ensure a covid-free Christmas, many people limited their social interactions in the run-up the big day, boosting home-cooked meals to the detriment of the hospitality sector. This displacement of spending from bars, restaurants and pubs supported food sales over the period.
“The retailer was also much better placed to cope with the surge in online grocery sales having invested heavily to boost capacity and improve efficiency over the last couple of years. A wave of new online grocery shoppers helped almost double sales on 2019 levels.”
Sainsbury’s is in a good position to ride out rising inflation, predicts Zoe Gillespie, investment manager at Brewin Dolphin:
“UK supermarkets faced tough comparisons against Christmas 2020, when lockdown caused a boom in food and drink sales, but the spread of the Omicron variant saw consumers stay away from bars and restaurants last year as well. Sainsbury’s is continuing to deliver strong results on the back of the range of measures it took to improve business performance.
Encouragingly, profit guidance has been lifted, cost savings are helping to stave off the effects of increased inflation, and debt reduction is ahead of schedule. Even the supermarket’s banking operation is seeing a turnaround in fortunes. Sainsbury’s is in a good position and that is being reflected in its increased market share and a share price that is up more than 50% since the very beginning of the pandemic – although, it is still off recent peaks.
While the spectre of inflation remains, Sainsbury’s has the ability to manage this better than many other businesses.”
Introduction: High gas prices could last two years, warns Centrica
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The UK’s energy crisis could last for two years, Centrica chief executive Chris O’Shea has warned, in a sign that the cost of living squeeze will intensify.
Speaking to the BBC, O’Shea warned that gas prices won’t fall soon, as consumers brace for bills to jump by around 50% this spring.
O’Shea, whose firm owns British Gas, the UK’s biggest energy supplier, warned that the energy squeeze will not be short-lived, so the government needs to provide targeted help to those who will suffer most.
“The market suggests the high gas prices will be here for the next 18 months to two years.”
There’s no reason to think that energy prices will come down anytime soon.
Wholesale gas price soared last year, hitting record highs towards the end of 2021. Although they have dropped back since, prices are around four times higher than a year ago.
O’Shea says the high demand for gas was partly being driven by a move away from coal and oil — creating rising demand for gas and a scramble for supplies.
“As we move towards net zero, gas is a big transition fuel.
“And so as you turn off coal-fired power stations in other countries, there isn’t an abundance of gas that you can just turn on quickly.”
But he doesn’t believe boosting supply from the North Sea as a domestic solution would have helped:
“We bring gas in from the United States, from Norway, from Europe, from Qatar, from other places. So we’re not in a position to simply have the UK as an isolated energy market. We are part of a global market.”
Bills are expected to jump by up to £700 in April after Ofgem next reviews the UK’s energy cap, taking the annual cost of electricity and gas for households on a supplier’s default tariff to £2,000, compared with £1,300 at present.
O’Shea says the government can take three steps to help:
- Defer the cost incurred by surviving suppliers from taking on customers of the many companies that have gone bust, rather than it be added to upcoming bills.
- Take the 5% VAT off energy temporarily or permanently.
- Move levies charged to fund a green transition from bills to general taxation.
Those moves, he claims, could be implemented quickly:
“And that would take care of half of the price rise.
And then you could get a further relief targeted to those households that needed most.”
Pressure is mounting on the government to act, with Ofgem due to announce the price cap next month.
Last week, Liberal Democrat leader Sir Ed Davey has called for the Warm Home Discount scheme, which helps people receiving some benefits, to be expanded.
Davey argue that the Warm Home Discount should be more than doubled, from £140 to £300, and allow many more people to qualify.
O’Shea, though, argues that the current design of the Warm Home Discount scheme would see relief for some result in rises in everyone else’s bills.
You can read the full story here:
The cost of living squeeze means that UK households have suffered the sharpest fall in the amount of cash they have available to spend for almost eight years, as high inflation and rising energy bills hit households.
According to a report by the insurer Scottish Widows, increasing living costs at the end of last year hit people’s pockets and led to the steepest decline in cash availability since the start of 2014.
It said people were increasingly pessimistic about their future finances in 2022, according to the latest reading from its quarterly household finance index.
- 10am GMT: Eurozone industrial production for November
- 1.30pm GMT: US CPI inflation for December
- 3.30pm GMT: EIA weekly US oil inventory figures
Centrica CEO: Is windfall tax consistent with stable solution to crisis?
Centrica chief Chris O’Shea also questioned whether energy producers, who have benefitted from the surge in wholesale prices, should face a windfall tax.
The Labour party have proposed a £1.2bn levy on North Sea oil and gas producers, as part of a package to help households and businesses with soaring bills.
O’Shea argues that the Treasury will already benefit from the jump in earnings:
If their profits are higher, they’ll be paying more tax. That will go into the government coffers. So there will be a tax windfall for this.
And he suggests that change to the tax regime could deter investment:
If your reaction to anything is to suddenly change the tax regime, then the only question I would say is, is that consistent with a long-term stable investment framework.
Is that consistent with a long-term stable solution, because that’s what need to ensure this never happens again.
Energy producers are certainly benefitting from the jump in energy prices, though.
Last November, BP CEO Bernard Looney said that soaring global commodity prices have made his energy major a “cash machine”, as it lifted its share buyback programme thanks to a sharp rise in quarterly profits.
Source: Thanks msn.com