By Svea Herbst-Bayliss

(Reuters) – Franchise Group Inc, owner and operator of retail stores such as The Vitamin Shoppe and Buddy’s Home Furnishings, has entered the race for Kohl’s Corp with a $9 billion indicative offer, three people familiar with the matter said.

Franchise Group has informed Kohl’s it would be willing to pay $69 per share to acquire the department store retail chain, subject to due diligence, the sources said.

Franchise Group’s bid is not the highest offer, however. Luxury department store operator Hudson’s Bay Company has indicated it is willing to pay at least $70 per share for Kohl’s, the sources said. Kohl’s shares ended trading on Monday at $57.24.

The sources declined to be identified because the discussions are private.

Still, Franchise Group’s entry in the process gives Kohl’s more options as it explores a sale under pressure from activist hedge funds. The buyer will have to secure committed financing to assume Kohl’s debt pile, which totaled $6.8 billion at the end of 2021, including operating leases.

Franchise Group has a market value of $1.6 billion and carried long-term debt of $1.9 billion as of the end of December. Its ability to carry out the deal would largely depend on the backing of Vintage Capital Management LLC, an investment firm run by retail investing veteran Brian Kahn. Vintage owned a 12.3% stake in Franchise Group as of December and Kahn was its chief executive.

A consortium backed by private equity firm Leonard Green & Partners LP, which includes Authentic Brands, has also made a bid for Kohl’s, the sources said.

Private equity firm Sycamore Partners and a group that includes Acacia Research Corp, a holding company for business controlled by activist hedge fund Starboard Value LP, made offers for Kohl’s during the first round of bidding, the sources said. It is unclear whether these parties remain in the process.

Representatives for Franchise Group, Hudson’s Bay, Leonard Green, Sycamore and Acacia did not respond to requests for comment.

A representative for Kohl’s could not be reached for comment.

Kohl’s, which operates more than 1,100 stores in the United States, is fighting to fend off a board challenge even as it considers selling itself. Hedge fund Macellum Advisors GP in February nominated 10 directors to the company’s 14-member board, arguing it has not done enough to improve its business and that it should sell itself.

Last week, Macellum urged the company to be more open about the sales process and give bidders and shareholders a fuller financial picture of itself.

In response, Kohl’s said it is thoughtfully and thoroughly evaluating proposals. Its investment bankers had held conversations with more than 20 potential buyers, the company has disclosed.

(Reporting by Svea Herbst-Bayliss in Boston; Editing by Bernard Orr)

(Reuters) -American Airlines expects higher costs in the current quarter amid higher labor and jet fuel expenses.

As demand returns, carriers are shelling out more to attract new staff as well as retain the existing crew amid looming worker shortage. Rising jet fuel prices around the world caused by Ukraine crisis are also impacting these carriers.

American projects a pretax loss, excluding special items, in the range of 21.3% to 22.6% for the first quarter.

The carrier said it expects its CASM (cost per available seat miles) to be up between 12% and 13% versus 11% and 13% predicted last month, excluding costs related to fuel and net special items. Overall CASM is estimated to be at least 16% higher than in the first quarter of 2019.

Shares of American fell about 1% to $16.81 in early trade.

The airline raised its jet fuel expenses for the quarter. It now expects to pay an average of between $2.80 and $2.85 per gallon, higher than its previous estimate of $2.73 and $2.78 per gallon.

Meanwhile, American expects quarterly total revenue to fall about 16% compared to pre-pandemic levels, as inflationary pressures impact consumer demand.

(Reporting by Nathan Gomes and Aishwarya Nair in Bengaluru; Editing by Saumyadeb Chakrabarty and Krishna Chandra Eluri)

By Nichola Saminather

TORONTO – Canada’s biggest banks started fiscal 2022 on a hiring spree, adding staff despite a tight labour market, especially to boost digital capabilities.

Their expansion in the midst of surging inflation could threaten profit margins, particularly as higher interest rates weigh on loan volumes.

“It’s a Catch-22,” said Avenue Investment Management portfolio manager Bryden Teich. From a short-term profitability perspective, “you don’t want them aggressively growing their costs at this part of the economic cycle.”

But not adding staff when clients are seeking more advice and personalized solutions and better digital offerings would hurt longer-term growth, he added.

The top five banks had increased their Canadian full-time equivalent positions to a record 171,730 in the first quarter of fiscal 2022, up 4.3% from a year ago for the fastest pace in at least three years, according to Reuters’ analysis of the banks’ statements.

The unemployment rate in the finance, insurance and real estate industries was at a record low 1% in March, the lowest of any industry in Canada.

Carolyn Hamer, partner at Deloitte focused on workforce-related issues, said the banks are trying to plug the digital gaps they recognized during the pandemic and are starting to get more aggressive as they compete with large technology firms.

Even in a tight labour market, banks can turn to contractors and gig workers, particularly with employees themselves seeking more flexibility, she said.

Bank of Montreal, whose Canadian workforce grew by 7.5%, the fastest of the major lenders, has been expanding its technology operations and personal and commercial banking, said Karen Collins, its chief talent officer.

Digital channels now account for more than a third of sales, and 90% of self-serve transactions happen outside branches, primarly online, so BMO wants to improve technology infrastructure and replace routine branch services with more advisory offerings, Collins said.

BMO is offering remote working flexibility, particularly to technology workers, if their roles allow, she added.

Royal Bank of Canada’s employee growth peaked in the third quarter of 2021 but it is still expanding its technology workforce, after adding 2,000 technology jobs last year, about half of those external hires, said Helena Gottschling, chief human resources officer.

“It is harder to source those critical skills, because we’re not the only employer hiring and… (we get) fewer applications than three years ago,” she said.

“In a tight talent market, compensation always rises to the top as an important lever,” she added. “We know who our top talent is” and reward them accordingly.

While this could boost labor costs more than expected, rising margins from higher interest rates could offset this, said Jason Boggs, Canadian banking and capital markets leader at PricewaterhouseCoopers.

Toronto-Dominion Bank announced plans to add 2,000 technology roles this year.

Anna Zec, senior vice president for human resources at Bank of Nova Scotia, said Scotiabank’s hiring surge reverses a pandemic reduction in recruitment.

Scotiabank, which had the second-biggest growth, plans to continue to expand Canadian banking and wealth management, and build its digital capabilities, she told Reuters.

“Customers are asking for more and more digital solutions… I don’t foresee our demand for technology talent slowing down anytime soon,” she said. “I think 2022 will continue to be a very challenging year from a talent standpoint.”

(The story is updated to correct title of BMO chief talent officer)

(Reporting By Nichola Saminather; Editing by David Gregorio)

By Alex Lawler

LONDON -OPEC on Tuesday cut its forecast for growth in world oil demand in 2022 citing the impact of Russia’s invasion of Ukraine, rising inflation as crude prices soar 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 3.67 million barrels per day (bpd) in 2022, down 480,000 bpd from its previous forecast.

The invasion in February sent oil prices soaring above $139 a barrel, the highest since 2008, worsening inflationary pressures. Crude has since fallen as the United States and other nations announced plans to tap strategic oil stocks to boost supply, but remains over $100.

“While it is forecast that both Russia and Ukraine will be facing recessions in 2022, the rest of the global economy will be thoroughly impacted as well,” OPEC said in the report.

“The strong rise in commodity prices in combination with ongoing supply-chain bottlenecks and COVID-19-related logistical logjams in China and elsewhere are all fuelling global inflation.”

Even so, world oil consumption is expected to surpass the 100 million bpd mark in the third quarter, as OPEC has predicted. On an annual basis according to OPEC, the world last used more than 100 million bpd of oil in 2019.

OPEC said inflation was the major factor impacting the world economy and lowered this year’s economic growth forecast to 3.9% from 4.2% and said there was a chance of a further cut.

“Further downside risks to this forecast are estimated to be considerable, to stand at more than half a percentage point, especially if the current situation extends into the second half of 2022 or even worsens,” the report said.

Oil briefly pared an earlier gain after the report was issued, although it was up almost $5 to above $103 by 1325 GMT.

OUTPUT UNDERSHOOTS

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

At its last meeting, OPEC+ swerved the Ukraine war, which Russia refers to as a “special military operation”, and stuck to a previously agreed plan to boost its monthly output target by 432,000 bpd in May.

Underinvestment in oilfields in some OPEC members – partly a result of the pandemic – means the group has been unable to fully deliver its promised output increases.

OPEC’s report showed OPEC output in March rose by just 57,000 bpd to 28.56 million bpd, lagging the 253,000 bpd rise that OPEC is allowed under the OPEC+ deal.

The growth forecast for non-OPEC supply in 2022 was reduced by just over 300,000 bpd to 2.7 million bpd. OPEC cut its forecast of Russian output by 530,000 bpd, although it raised its forecast for U.S. tight oil, another term for shale.

OPEC expects U.S. tight oil supply to rise by 880,000 bpd in 2022, up from 670,000 bpd last month, and said there was potential for further expansion even though most U.S. oil companies are still focusing on capital discipline.

(Editing by Jason Neely and Barbara Lewis)

By Howard Schneider and Lindsay Dunsmuir

(Reuters) -Prices for online goods continued to surge in March at a record pace, data released on Tuesday from Adobe Inc showed, adding a potentially troubling dimension to the Federal Reserve’s battle to slow the overall pace of price increases.

Adobe’s digital price index increased by 3.6% from a year earlier, the same as in February, with costs for apparel – long a category with heavy online discounting – up 16.3% from a year before and online grocery prices up 9%.

Adobe began publishing a monthly digital price index last year, tracking tens of millions of online goods in 18 categories aligned similarly to the government’s Consumer Price Index.

New CPI data on Tuesday showed prices rose 8.5% over the last 12 months as of March, the largest increase since December, 1981. Even as inflation for some goods eased, it spread to items like food away from home and airline fares, evidence demand was shifting as expected to services but also a sign that the move won’t necessarily cure the inflation problems on its own.

For the Fed, the shift in online price dynamics is one more piece of evidence that the factors driving U.S. and global inflation may have changed fundamentally, or at least in ways that will not revert quickly to the more tempered inflation seen before the pandemic.

“Over the past 30 years globalization, demographics, technological change have driven prices. The Fed cannot do anything about the three of them,” said RSM chief economist Joe Brusuelas. “We are just going through a period of prolonged disruption” that could mean structurally higher inflation as populations age and then save less and spend down assets, and globalization suffers through a series of shocks including the trade war launched by former President Donald Trump, the pandemic, and now the war in Ukraine.

Technology continues to offer potential relief through higher productivity, but as the Adobe index showed, at least for now that impact is not being felt for key consumer goods.

“MORE PERSISTENT”

The Fed in March raised the target federal funds rate by a quarter of a percentage point in the first of an anticipated series of increases this year.

Coming hikes may be in larger half-point increments, and the central bank is expected to soon begin trimming its asset portfolio, which may further raise borrowing costs for consumers and businesses.

Still, the gap between current inflation and the Fed rate is among the largest on record, a measure of the Fed’s reluctance last year to begin rate hikes when inflation first took off.

That hesitancy was rooted in a belief that the forces driving inflation represented temporary disruptions that would snap back to prior form and cause inflation to behave as it did when it was pinned close to 2%, the Fed’s targeted level.

“It’s gonna take time for us to appreciate the recent burst of relative prices and how long they’re going to be with us,” Chicago Fed President Charles Evans said on Monday. “They’re much more persistent than initially expected, (but) I don’t think they’re going to be permanent.”

The issue is central to how Fed policy evolves this year. If inflation does ease as pandemic and other shocks abate, the Fed can do less. Otherwise more of the work will fall to monetary policy, likely raising the risk of recession as the Fed becomes even more aggressive.

Research out last week from Michael Kiley, deputy director of the Fed’s Division of Financial Stability, examined whether the 2000-2019 experience showed that inflation was clearly “anchored” at 2% then – perhaps because of larger structural reasons that could dominate again – or was simply persistent, and tended in the future to be what it was in the past absent some shock.

His conclusion: It could be either.

Data from 2000 to 2019 “contains very little information” to argue convincingly that inflation isn’t persistent.

Policymakers have turned attention to the reasons why a phase of endemically higher inflation may be at hand, with key culprits including tight labor markets and the consequent higher wage pressure, to the reordering of global supply chains as firms insure against future disruptions by locking down multiple sources or investing closer to home at a higher cost.

At a Fed event on Monday, one trucking industry executive painted a grim picture of how the pandemic had upended pricing expectations and how long it may take to sort out, if ever.

Crissy Wieck, chief sales officer at Western Express, said after boosting driver wages 40% last year, the company faces a more than 80% jump in trailer prices, from $28,500 to $52,000, constraining efforts to increase its capacity.

“Your business can’t function without raising the cost of what we do every day,” she said at an event in Nashville, one of the Fed Listens series of community sessions. “There hasn’t been an infusion of 200, 300, 400,000 extra trucks to take the pressure off. … We won’t have new trucks until 2024. So that supply chain and that supply demand ratio is not going to correct.”

(Reporting by Howard Schneider and Lindsay Dunsmuir Additional reporting by Ann Sahpir;Editing by Dan Burns, Leslie Adler and Andrea Ricci)

By Aditi Shah

PUNE, India -Germany’s Mercedes-Benz is betting that an expanding pool of young new millionaires will drive demand for luxury cars in India, creating faster sales growth than for mass market cars, a top company official said.

India’s increasing numbers of “dollar millionaires” include young entrepreneurs or high-earning professionals who appreciate the luxury element and technology of the cars, said Martin Schwenk, chief executive of Mercedes-Benz India.

“The base is getting broader and gradually moving beyond our traditional customers,” Schwenk told Reuters in a recent interview in the western industrial city of Pune, home to Mercedes’ India headquarters and manufacturing plant.

“Going forward we will see higher growth rates in the luxury segment than we see in the mass market,” he said, adding that buyers’ average age had also fallen below 40, from more than 45 earlier.

Mercedes is the top-selling luxury car brand in India, with a market share of more than 40%, says auto market data provider JATO Dynamics, and it competes with Audi, BMW and Tata Motors’ Jaguar Land Rover.

Global carmakers’ biggest growth hurdle is a shortage of semiconductors and logistics woes worsened by Russia’s invasion of Ukraine. For Mercedes India, this has led to an order backlog of 4,000 cars and wait times of more than six months in some cases, Schwenk said.

“We have very good sales momentum, the concerns are on the supply side. You have congestion at the ports that cause really significant delays and that is hampering our output,” he said.

India’s start-up frenzy and stock market boom are creating a new breed of wealthy splurgers on luxury brands such as Rolex, Louis Vuitton and Gucci, the 2021 Hurun India Wealth Report showed.

The number of Indian households with a net worth of at least a million dollars grew 11% in 2021 to 458,000 and is expected to increase by 30% over the next five years, the report said.

India is largely a small and low-cost car market in which luxury models account for just over 1% of total annual sales of about 3 million.

Mercedes’ India sales rose more than 40% to 11,242 cars in 2021, coming off a low of 7,893 during the pandemic-hit year of 2020.

But the carmaker saw growth of 80% in top-end models such as the GLS, S-Class and GLS Maybach, all cars costing more than 10 million rupees ($131,337).

Schwenk said while the pandemic had driven some of this demand, as more people “spent for their own pleasure”, India’s luxury car market showed potential for higher growth, a feature missing over the last six to eight years.

To capitalise on the momentum, the company plans to launch 10 models in 2022, including its locally assembled electric sedan EQS.

While growth in India’s luxury and mass markets are not directly comparable, Mercedes’ high-end models doing well reflects the wealth of the nation, said Ravi Bhatia, president for India at JATO.

“The rich have become richer and some of them have ended up upgrading their lifestyle,” Bhatia said.

JATO’s analysis also showed that Mercedes’ product mix and pricing led to a lower average weighted price of its cars, putting upgrades to the luxury segment within reach of more customers, he added.

Mercedes’ sales in India in 2021, however, were still lower than its peak of more than 15,500 cars in 2018. Schwenk said sales could approach 2018 levels this year if there were no further supply chain disruptions because of COVID or geopolitical issues.

Lowering Indian taxes on luxury cars, which he said were among the highest in the world, would also help grow the segment and benefit the car market.

(Reporting by Aditi Shah; Editing by Clarence Fernandez and Susan Fenton)

NEW YORK – U.S. monthly consumer prices increased by the most in 16-1/2 years in March as Russia’s war against Ukraine boosted the cost of gasoline to record highs, cementing the case for a 50 basis points interest rate hike from the Federal Reserve next month.

The consumer price index surged 1.2% last month, the biggest monthly gain since September 2005, the Labor Department said on Tuesday. The CPI advanced 0.8% in February.

In the 12 months through March, the CPI accelerated 8.5%. That was the largest year-on-year gain since December 1981 and followed a 7.9% jump in February. It was the sixth straight month of annual CPI readings north of 6%.

STORY:

MARKET REACTION:

STOCKS: S&P e-mini futures extended gains were last up 1.09%, pointing to a firm open on Wall Street

BONDS: Yields on benchmark 10-year notes fell to 2.7118%. Two-year Treasury yields fell to 2.4177%

FOREX: The dollar index turned 0.25% lower

COMMENTS:

MAZEN ISSA, SENIOR FX STRATEGIST, TD SECURITIES, NEW YORK

“There was a lot of focus on this print and it was being chalked up to be a very spicy print and that did not disappoint, especially the headline measure. I think the focus here will be that expectations for the core measure, albeit very high expectations, were underwhelmed.”

“Ultimately, I don’t really think that this inflation print really changes the price action in the FX space, because at the end of the day, we’re still sitting at 6.5% year-over-year core inflation and despite the slight moderation, it’s likely to remain elevated for the next several prints. And so, ultimately the forces that are justifying robust tightening by the Fed remain very much in place.”

THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL, NEW YORK

“You’re seeing futures are up because everyone came into this report expecting that inflation would be a lot higher than anticipated. And what we’re actually seeing is that the core CPI, they came in slightly lower than expected, particularly month-on-month core CPI. And that’s a very good thing because you really saw yields blowing out ahead of this event.”

“This is a very positive report for stocks and particularly for tech stocks, the long duration equities which have been left for dead as the 10-year yield spiked. This may be a short-term peak in yields and it may be an opportunity to get meaningful exposure into tech as it starts to finally get bid once again along with bonds.”

MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST AT JONESTRADING, STAMFORD, CONNECTICUT

    “The numbers were basically in line with expectations. This is expected to be the high print for year-over-year CPI for the cycle. When we get this month’s reading and you know subsequent readings they should be lower levels than 8.5%.”

    “Considering the stock and bond sell-off coming into the number and the numbers are basically in line with expectations, we’re getting a nice buy-the-news relief rally … it should not change any expectations for monetary policy.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“Top line was ugly but the core rate was lower than we expected. This is not good news, but yields are coming off their high indicative of another bloodbath in the debt market.”

“The bottom line is inflation is going to stick around for a while, but we could see it begin to reverse in the summer months, provided we get some cooling off in agricultural and energy prices.”

“(Stock) futures are gaining strength, the market anticipated these numbers yesterday. Stocks are likely to have a positive trading session in anticipation of the banking earnings.”

“It’s nearly written in the stone that we’ll see a 50-basis-point rate hike in May and another in June. The Fed is behind the curve.”

(Compliled by the global Finance & Markets Breaking News team)

By Abhijith Ganapavaram

(Reuters) -General Motors Co said on Tuesday it would buy cobalt from miner Glencore PLC to use in its electric vehicles (EVs), as automakers around the world scramble to stock up on the critical raw material amid supply chain disruptions.

Global automakers, ranging from EV leader Tesla Inc to Volkswagen, are splurging billions of dollars on developing vehicles for a market that could be worth $5 trillion over the next decade.

However, metals to make batteries that last longer hard to come by due to supply chain disruptions, which has led to automakers rushing to secure supplies of lithium, nickel and cobalt.

The prices of these rare metals have soared to multi-year highs.

Cobalt, a metal that makes up 0.001% of the earth’s crust, ensures cathodes do not easily overheat or catch fire and helps extend the life of batteries, which automakers usually guarantee for eight to 10 years.

The cobalt, secured from Glencore’s Murrin Murrin operation in Australia, will be used in GM’s Ultium battery cathodes, which powers the Chevrolet Silverado EV, GMC Hummer EV and Cadillac Lyriq vehicles, the companies said in a joint statement https://bit.ly/37doJ0r.

They did not disclose the size of the deal.

GM, which has laid out plans to ramp up capacity to build one million EVs in North America by the end of 2025, also has an agreement with General Electric Co to develop a supply chain of rare earth and other materials.

It had also announced it would invest in a U.S. lithium project last year, which could become the country’s largest by 2024.

Rival Ford Motor Co said on Monday it had signed a preliminary deal to buy lithium from a Lake Resources NL facility in Argentina.

(Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Amy Caren Daniel)

By Emma Farge

GENEVA -The World Trade Organization (WTO) on Tuesday revised down its forecast for global trade growth this year to 3% from 4.7% because of the impact of the Russia-Ukraine war and warned of a potential food crisis caused by surging prices.

The report from the global trade watchdog said the conflict, now in its seventh week, had damaged the world economy at a critical juncture as the coronavirus pandemic – and Chinese lockdowns specifically – continues to weigh on the recovery.

“The economic reverberations of this conflict will extend far beyond Ukraine’s borders,” WTO Director-General Ngozi Okonjo-Iweala told a news conference presenting the findings.

“It’s now clear that the double whammy of the pandemic and the war has disrupted supply chains, increased inflationary pressures and lowered expectations for output and trade growth.”

The Geneva-based body forecast global trade growth in 2023 would inch up to 3.4%, noting that both 2022 and 2023 estimates are less certain than usual due to uncertainty about the conflict.

Okonjo-Iweala also warned of a potential food crisis because of disruptions to exports from Ukraine and Russia, both major suppliers of grains and other commodities, that could hit poor countries, including some 35 African importers, the hardest.

“This is why we need to act and act decisively on this issue of food in order to avoid food riots,” she said, citing the need for more transparent monitoring systems and potential releases of buffer stocks to lower prices.

She urged countries to remain committed to the multilateral trading system to stave off the risk of it splitting into two spheres. “I think the costs to the global economy will be quite significant if we do that,” she said.

WTO chief economist Robert Koopman said there was an “extremely difficult set of circumstances in the world economy” but said trade remained resilient and that warnings of the end of globalisation were unfounded.

“So far there’s been no evidence of reshoring,” he said.

(Reporting by Emma FargeEditing by Madeline Chambers and Tomasz Janowski)

By Tom Sims and Alexander Hübner

FRANKFURT – U.S. investor Capital Group sold big stakes in Germany’s two top banks – Deutsche Bank and Commerzbank – a person familiar with the matter said, dealing a blow to both lenders as they seek to rebuild investor confidence.

Shares in the two banks traded sharply lower on Tuesday after the previous day’s sale of more than 5% in each of them by what had been an undisclosed investor.

The exit follows a similar move by U.S. private equity firm Cerberus in recent months and comes as both banks implement turnaround strategies to lift profitability and the value of their shares.

Capital Group, based in Los Angeles, is one of the few holders of such sizeable stakes in both banks, but it has declined to comment on the matter.

The person confirming the name spoke on condition of anonymity.

Deutsche Bank shares were down 8.8% and Commerzbank had lost 8% by mid-afternoon in Frankfurt.

A statement from Deutsche Bank said that it remained “confident” in its strategy.

“Our focused business model and risk-management capabilities have proven their resilience in challenging times,” it said.

Commerzbank said the sale won’t change its strategy.

“The bank’s business model and risk management have proven effective in challenging times,” it said.

The sale resulted in proceeds of 1.75 billion euros ($1.9 billion), based on calculations from information provided by bookrunner Morgan Stanley.

($1 = 0.9210 euros)

(Reporting by Tom Sims and Alexander Huebner; Editing by David Goodman, Kirsten Donovan)

By Dhara Ranasinghe and Stefano Rebaudo

LONDON – Thursday’s European Central Bank meeting could mark another tense moment for policymakers caught between record high inflation and the economic hit from the war in Ukraine.

As some of the most dovish major central banks change tune to tackle surging inflation, some ECB Governing Council (GC) members are also pushing for an interest rate rise sooner rather than later.

Here are five key questions for markets.

1/ When will the ECB hike rates?

A growing number of conservative policymakers would like an interest rate increase before year-end. Markets are betting the -0.5% deposit rate could rise as early as July.

The ECB has not made any commitments and President Christine Lagarde could be pressed on timing. U.S. rates rose in March, and Britain has hiked three times since December.

A prerequisite to an ECB rate move is ending bond purchases in the third quarter. The ECB says any increase will come some time after this.

“This meeting is key because it is hard to see currently what the ECB’s main message is,” said ING’s global head of macro Carsten Brzeski. “It needs to give more guidance.”

GRAPHIC: Money markets bet ECB will raise rates fast (https://graphics.reuters.com/EUROPE-MARKETS/gdpzybkonvw/chart.png)

2. Could the hawks push for a precise end-date to bond buying?

Don’t rule it out. Recent ECB decisions have surprised markets and pressure is building after March’s 7.5% headline inflation print.

The ECB in March decided to end asset purchases sometime in the third quarter but made no further commitment on how to exit stimulus. Minutes from that meeting show a sizable group wanted to set a firm end-date for asset purchases.

“The debate and positions on the GC will only get more entrenched as inflation far exceeds its (2%) target, but the flip side is that growth is going to be much weaker,” said Nick Kounis, head of financial markets research at ABN AMRO.

GRAPHIC: ECB plans to end asset purchases in Q3 (https://fingfx.thomsonreuters.com/gfx/mkt/mopanborjva/ECBAprilAPP.PNG)

3. Is the ECB behind the curve on inflation?

Well, it has persistently underestimated price pressures over the past year and concern that high inflation could become entrenched is growing. Inflation shows few signs of peaking. The ECB is not alone, with many central banks accused of being too slow to respond to soaring prices.

While the ECB would normally tighten policy to fight inflation, such a move could further hurt consumers, already hit by rising energy prices.

Chief Economist Philip Lane says the ECB should take its time analysing the data.

“The ECB is probably a bit behind the curve, but not much, as the euro area economy is the epicentre of the adverse fallout of the war and a sharp growth slowdown would help tame inflation,” said Generali Investments’ senior economist Martin Wolburg.

GRAPHIC: Inflation is well above its 2% target (https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnmyxdvq/ECBAprilCPI.PNG)

4. Is there a risk of stagflation?

Yes, say economists. Major economies are grappling with high inflation, but the euro area is the most exposed to the Ukraine conflict. So risks of weak growth and high inflation, or stagflation, are rising.

Germany’s council of economic advisers has more than halved its 2022 growth forecast to 1.8%, and euro area consumer confidence has plunged. ECB Vice President Luis de Guindos expects second-quarter growth to hover around zero.

ECB chief Lagarde says the ECB does not expect war in Ukraine to lead to stagflation.

GRAPHIC: Cracks widen in euro zone economy as war in Ukraine rages on (https://fingfx.thomsonreuters.com/gfx/mkt/myvmnqrbxpr/sentiment0804.PNG)

5. What about losing Russian energy?

Europe depends on Russia for about 40% of its gas needs and without it, would have to buy more gas on the spot market where prices are around 500% higher than 2021.

Germany has already activated the first stage of an emergency plan to manage Russian gas supplies in preparation for possible disruptions or a halt.

In a pessimistic scenario, where energy supply from Russia is cut by 50%, UBS Investment Bank economist Reinhard Cluse expects inflation to spike above 9% with a recession possible.

If Russian gas stops completely, the ECB could consider a new stimulus scheme or extend asset purchases, others add, although postponing potential rate hikes seems more likely.

GRAPHIC: Gas prices off peaks but still up over 50% this year (https://fingfx.thomsonreuters.com/gfx/mkt/klvykjlrwvg/ECBAprilGAS.PNG)

(Reporting by Dhara Ranasinghe in London and Stefano Rebaudo in Milan, Editing by Tommy Wilkes and Emelia Sithole-Matarise)

TOKYO – An international liquefied natural gas (LNG) body has appealed to governments to help mitigate fuel price spikes and promote new LNG developments to secure a stable global supply.

“This is the first time the International Group of Liquefied Natural Gas Importers (GIIGNL) has issued such an urgent message, underlining the sense of crisis,” Michiaki Hirose, GIIGNL’s vice president for Asia told reporters on Tuesday.

The Paris-based group, whose members account for more than 90% of global LNG trade, issued a statement a day earlier after a meeting of its executive committee, saying governments should provide protection mechanisms to reduce the exposure of LNG importers and consumers to potential procurement cost increases.

It also said governments should encourage technological development and LNG contracts through policy and financial support to underpin final investment decisions in the LNG value chain.

“In the midst of the current global energy crisis, the stabilisation of LNG trade is a matter of urgency,” said Hirose, who is also Chairman of Tokyo Gas Co Ltd.

Japan, the world’s second-biggest LNG buyer after China, should consider boosting the capacity of LNG storage tanks and tankers, Hirose said.

“Holding LNG reserves has been a taboo subject as it is physically and technically difficult to store…But some measures similar to national petroleum reserves may be needed,” he said.

Unlike some European countries that can store months of natural gas supplies in underground salt caverns or depleted gas fields, Japan can only store around three weeks of its LNG requirement in superchilled storage above ground near import terminals.

Cooperation among LNG buyers within Japan and each region are also key in the event of any supply disruption, Hirose said.

“It would be ideal if Japan, South Korea and Taiwan, which have long collaborated over LNG, could cooperate if some emergency happens,” he said.

(Reporting by Yuka Obayashi; Editing by Kirsten Donovan)

By Mimosa Spencer, Valentina Za and Francesco Zecchini

PARIS/MILAN -European perfume- and cosmetics-makers face shortages of paper, glass, and some key oils and alcohols, as Russia’s invasion of Ukraine adds further disruptions to the supply chains for beauty products, driving prices higher amid robust demand.

Like the food industry, the $500 billion global cosmetics sector is grappling with fallout from the war because producers use alcohol derived from grains and organic beets to make perfumes, and sunflower-seed oils to make cosmetics – all key crops from Ukraine.

At the same time, the energy crisis sparked by the war has pushed glass and paper prices through the roof, while China’s COVID-19 lockdowns have thwarted companies’ ability to obtain packaging components for $100-a-bottle scents and $30 lipsticks. 

“We’re in crisis management mode when it comes to these subjects of sourcing,” Emmanuel Guichard, secretary general of French cosmetics association FEBEA, told Reuters in an interview. 

Consultancy firm Bain & Company calculates higher prices for packaging, energy and raw materials have driven up production costs in the cosmetics industry on average by 25%-30%, posing a challenge to mass cosmetics producers, though demand for personal care products remains strong, according to partner and EMEA luxury practice leader Federica Levato.  

Italian fragrance manufacturer ICR expects sales this year to surpass pre-COVID levels, but the family-owned maker of Bulgari and Salvatore Ferragamo perfumes is wrestling with a yearly 30% spike in the cost of alcohol, on top of a 10% rise in the cost of glass and paper, Vice President Ambra Martone said. 

Sales of beauty products globally are seen topping the 2019 level of $538 billion this year, up from $518 billion in 2021 and $458 billion in 2020, a McKinsey report showed.

That is still a fraction of other industries that have been disrupted by the war, including the global packaged food industry, which is forecast to be worth over $2 trillion this year, according to the latest estimates from Euromonitor. Russia’s invasion of Ukraine has caused turmoil in markets for staple grains and edible oils, pushing world food prices to new highs.

While larger companies with higher profit margins have more financial firepower and flexibility to cope – L’Oreal’s luxury division, which sells Giorgio Armani and Valentino branded makeup and perfume, for example, has an operating margin of 22.8% – the challenge is particularly acute for small- and medium-sized companies in Europe. 

“We face scarcity and price increases every step of the way: from essences and alcohol to glass and paper – even for spray dispenser pumps and Surlyn plastic used for caps,” said Marco Vidal, managing director of Venetian fragrance manufacturer Mavive, owner of the Merchant of Venice brand. 

The challenges are flaring up as consumers continue snapping up higher-priced beauty products, including perfumes made with a stronger concentration of oils and more unusual raw ingredients.

Sales of fragrances have been rising steadily over the past three years, and were up by 15% in 2021 in the United States, with perfumes priced at more than $175 a bottle more than doubling in unit sales, according to the latest data from NPD Group. 

“It’s a disaster, and you just can’t find glass,” said Alba Chiara De Vitis, founder of Florence-based Alchemia Essenze whose fragrances sell for up to 180 euros ($196) a bottle.

European cosmetic makers, which exported 22.6 billion euros ($24.6 billion) of goods in 2020 according to industry association Cosmetics Europe, found competing demand for packaging materials after the coronavirus pandemic which has boosted e-commerce, driving paper consumption amid efforts to reduce use of plastic.

Glass makers, on their part, have struggled to cope with demand for vaccine vials after scaling down production in the early stages of the pandemic, turning off furnaces in Italy for the first time in decades.

Now gas prices are exacerbating problems for both industries, forcing paper mills in Italy to temporarily halt production to renegotiate selling prices.

A doubling in the cost of paper it uses to make rigid luxury boxes for clients including Dolce & Gabbana, Ferragamo and Givenchy has led Italy’s Isem Group to hike the price of its products of between 10% and 40%, CEO Francesco Pintucci told Reuters.

Italian glass-maker Bormioli Luigi, which makes bottles for spirits, perfumes and cosmetics with yearly revenue of 480 million euros, expects 80 million euros in extra energy costs this year, half of which borne by its beauty division whose clients include French brands Chanel and Dior, head of fragrances Simone Baratta told Reuters. 

“Before the war the cost of a flacon from distributors was 0.75-1.40 euros, now it’s 1.00-1.50 euros,” De Vitis said.

Glass makers in France, where larger cosmetics companies began placing orders months earlier than they had in the past, have struck a more reassuring note, said Guichard, who predicts they, too, will likely soon feel the pinch of the energy crisis.

“I think we’ll have a hard time obtaining gas to make perfume bottles,” he said, noting there wouldn’t be enough time to convert gas-powered ovens to electric systems.  

Meanwhile, executives at Intercos, an Italian cosmetics supplier for brand names, which on Tuesday signed a five-year commercial deal with Dolce & Gabbana, said it had raised prices by around 5% in late 2021 and was considering a further hike in the summer.

“In the luxury beauty sector, we expect that the consumers will carry the burden of these higher costs after a transition period that could last a few months,” Levato said.

($1 = 0.9189 euros)

(Reporting by Valentina Za and Francesco Zecchini in Milan; Mimosa Spencer in Paris; Additional reporting by Silvia Ognibene in Florence; Editing by Diane Craft and David Goodman)