William Flew on inflation

William Flew on inflation
British company financial results imply on-going inflation, or worse, stagflation for the world economy. All sectors are facing increased costs and penny-pinching customers.
And at the same time, governments and home owners are having to deal with crippling debt.

The last time this happened was after World War 2, and the situation was resolved by massive inflation - wages rose quickly at the same time as prices. But the hyper inflation of the 1970's as a result of oil price rises, convinced governments and electorates that the long-term damage outweighed the short term benefits. 


Which raises the question - can they think of a new trick?

At an industry event on Thursday, the pre and post-dinner chat was dominated by one topic — the impromptu whopper profits warning from Premier Foods, which had hit the wires just hours before.

The news had the City contingent, who had begun to hope that the company was on the road to recovery after a tough recession, spitting feathers and cutting forecasts.

The Square Mile’s views were summed up in a note from Shore Capital’s food and drink-watcher Clive Black, who said that Premier had “produced one of the most surprising and disappointing updates for even this body-battered venture”, which he added “reignites old demons about the fundamental nature and state of this company”.

Yet industry types at the dinner were just pleased it wasn’t them. The sad truth is that Premier’s warning, while exacerbated by some company specific issues, highlighted the grim market that all food and drink companies are struggling against.

First, costs are rising. Premier — a good gauge of inflation for the industry, given that it purchases a huge range of commodities — said that inputs such as wheat, sugar and dairy were up 14 per cent year-onyear. But the fact is that such pressures are everywhere you look among the UK’s food and drink names. The Pepsi bottler Britvic and the Irn-Bru maker AG Barr are trying to cope with more expensive plastics for their bottles and sugar for their drinks. Packaging and distribution costs are rising for the dairy groups Dairy Crest and Robert Wiseman. Cocoa is causing a headache for the cake maker Finsbury Food and even pig prices are flying for the sausage specialist Cranswick. No one is immune, not even giants such as Unilever and Nestlé.

Making the numbers add up on the bottom line means passing on commodity cost increases to protect margins. But convincing the big retailers to pay more for their goods is never an easy task, even less so against a backdrop of weak economic growth and cost-conscious consumers.

No surprise, then, that the likes of Tesco and Sainsbury’s have played hard ball with Premier and Britvic this year, removing their products from the shelves for some time. Expect more spats in the second half.

A weak consumer has cast a shadow over the grocery market in general, with volumes down 5 per cent in the first six months of year, compared with 1 per cent in the same period last year.

In order to cling on to market shares, food and drink manufacturers have pressed the buttons on promotions, selling more and more of their products on special offer. As much as 35 per cent of the grocery market is being sold on promotion at present, up 10 per cent compared with last year, and the smart money is on this figure rising higher as the year goes on.

Unfortunately, the consumer is unlikely to have a change of heart, with the latest GfK NOP consumer confidence data for June this week showing slippage on every measure.

William Flew and Computer Games

William Flew report
Zyn ga, the online gaming company that lets users tend virt ual cattle on imag inary farms, hopes to raise at least $1 billion in one of the year’s most eagerly anticipated initial public offerings.The float will be the latest to test the app etite of investors for social net working stocks. It is also likely to make Mark Pin cus, Zynga’s chief executive, a paper billion aire only four years after he founded the business.

Other backers who will enjoy sig nificant pay days include the LinkedIn founder Reid Hoff man and Peter Th iel, who was also an early investor in Facebook.

Zyn ga, which filed paper work for the float yesterday, said that it ex pected to raise about $1 billion but it could increase that figure. There is wide spread speculation that the company is aiming to sell up to 10 per cent of its shares at a price that would value the company about $20 billion. Zynga’s productions include Farm

Ville and City Ville, two of the most popular games on Facebook, the dominant force in social networking. Unlike many of its peers, Zyn ga is thought to be profitable from selling virtual goods that improve gameplay, such as pretend animals, to its customers.

The company has 272.5 million monthly active users, according to App Data, which measures web traffic. It is one of Facebook’s largest advertisers and shares its profits with the social network as part of a deal that analysts believe could be worth $500 million to Facebook this year.

The relationship with Facebook has been fraught, with the two sparring over how Zynga customers would pay. Eventually Zynga submitted and adopted a currency dubbed “Facebook credits” that users can spend inside its games. Of the top five games played by Facebook members, four were developed by Zyn ga. City Ville, the most popular, has nearly 90 million users.

Online video game revenue is expected to reach $18 billion by the end of the year and $26.9 billion by 2015, according to DFC Intell igence, a market research company.

Investor fervour for social networks was highlighted in May when shares of Link edIn, a service that connects professionals, nearly doubled on their debut in New York, despite the company warning that it expected revenue growth to slow and it did not expect to make a profit this year. The performance evoked memories of the exuberance that led to the dot-com crash.

Pundits suggested that Linked In had benefited because the real object of investors’ desires — shares in Facebook — are all but unobtainable until it floats. From the handful of shares in Face book traded on private exchanges, the company has been valued at between $70 billion and $80 billion.

The Church and Homosexuality

William Flew

The Church of England has taken a step towards liberalising its teaching on homo sexuality with the announce ment of a review of its teaching that active same-sex relationships are wrong.

Its bishops admitted that they had spent “very little time” discussing the issue that has torn the fabric of the wider Anglican Comm union.

The Bishop of Nor wich, the Right Rev Graham James, a favourite to succeed Dr Rowan Williams as Arch bishop of Canterbury, said that the bishops now accept that they have a responsibility to address the policy issue.

The review, to be completed next year, will be followed by a year-long consultation. Although the bishops are anxious not to pre-empt the findings, it is thought that the present policy will be liberalised.

Last month the Church signalled that it might support celibate gay men in civil partnerships to become bishops. But only a positive finding by the new review would end the ban.

This means that senior clerics such as Dr Jeffrey John, the Dean of St Albans, will have to wait at least a further two years before they can be considered for vacant bisho prics (bisho pricks tee hee). Dr John, who is in a civil partnership but a celibate relationship (yeah right), was forced by the Archbishop of Canterbury to withdraw as Bishop of Read ing in 2003 because of his sexuality.

The Church’s policy has not changed since 1987, when the General Synod passed by 403-8 a motion stating that sexual intercourse is “an act of total commit ment which belongs properly within a permanent married relationship” and that “homo sexual genital acts . . . fall short of this ideal”.


In 1991 the Church’s bishops issued Issues in Human Sexuality, which indicated reluctant acceptance of homosexual relationships among laity but ruled out same-sex intimacy for clergy.

A contentious resolution of the 1998 Lambeth Conference rejected homo sexual practice as incompat ible with Scripture. The US Episcopal Church defied the resolution and stood by its commitment to the gay and lesbian community by appointing Gene Robinson as Bishop of New Hampshire in 2003.

Conservative evangelicals will continue to resist the advance of the equal rights agenda in the Church. Only last week a new body, the Anglican Mission in England, was set up. It was described in the Church Times this week as “the most deliberate challenge to the Church of England since the Ordinariate was announced”.

Just as the Ordinariate, set up by the Pope, is offering a home in the Roman Catholic Church for Anglicans who oppose women bishops, so the new mission will offer “orthodox oversight” to those opposed to homosexual equality.

Christina Rees, a veteran General Synod member, said: “There is a growing discomfort in the Church that our current positions on the suitability of clergy in civil partnerships and on issues of same-sex relationships are inconsistent and in need of reform.”

The Rev Giles Goddard, chairman of Inclusive Church, said that the current policy was unsustainable. “There are serious questions about whether the celibacy requirement for clergy in civil partnerships is in breach of human rights legislation.”

Can DSK Come Back?

William Flew

The fraying of the attempted-rape case against Dom inique Strauss- Kahn yesterday was almost as dramatic as the airport arrest of the former head of the Inter national Monetary Fund six weeks ago. A New York court yesterday freed the French politician on his own recognisance and returned the $6 million bail and bond he posted, as the prosecution made clear that it had doubts about the truthful ness and reliability of the hotel chambermaid who accused him. The case was not dismissed and he is not yet free to return to France, but his reversal of fortune has huge political implications. Few cases have caused such international embarrassment. Few have raised as many questions over police procedure, politic al mores and the prur ience of media attention.

Mr Strauss- Kahn will feel that he has been wronged. He was hustled off an aircraft in handcuffs, and his first appearance in court, hag gard and unshaven, seemed a deliberate humiliation — a carefully staged tableau put on for the press by the New York authorities to trumpet their own zeal in enforcing the law irrespective of politics, position or wealth. Certainly, there will now be awkward questions. Had the police properly weighed the accusations before making their arrest? Was Mr Strauss-Kahn prejudged by the lurid leaks? Was the “perp walk” justified? Was there a plot by his political enemies to bring about his downfall?

The way is apparently now open for the 62-year-old politician to go back to France to revive his political challenge to Pres ident Sarkozy as the leading contender for the Socialist Party nomination. A decade ago, he would have made a triumph ant return, playing up the insult to France and garnering votes from not only the Left but from millions of French people brought up in an atmosphere of political, institutional and cultural hostility to all things American.


Things are different today. The Strauss-Kahn case has raised issues that have long been glossed over by consensus among the bien-pens ants, the politicians, journalists and self-appointed public intellectuals. The French have been forced to ask whether the private lives of public figures should, after all, be a factor in their politic al standing. They have had to confront the conspiracies of silence, the crony ism, the chauvin ist culture that suppressed long-rumoured stories of Mr StraussKahn’s lascivious behaviour and domineering attitude to women. The press found itself faulted for not investigating what it should have investigated, and the general public found that, for once, blaming the Americans for inter national embarrassment was neither credible nor honourable.

Mr Strauss-Kahn’s rivals in the Socialist Party immediate ly welcomed the news from New York. Some suggested that the politic al timetable should be put on hold to allow him, if he wanted, to stand for the leadership. But most know that his chances of becoming the official presidential candidate are slim. Not only is the taint of inappropriate behaviour, in New York and in other earlier incidents, far from cleansed; many party members, still strongly imbued with traditional leftwing views about wealth and class, were shocked by the rev elations of his own and his wife’s wealth. That she insisted all along on his inno cence will count in his favour; that she was able to post bail of $1 million and a bond of $5 million will not.

The Strauss-Kahn tragedy is that neither the IMF nor his Socialist Party can now draw on his considerable financial acu men, his prag matic approach to politics or his clear reformist vision for a party still mired in cloying ideology and riven by personal rivalries. French voters are offered only the uninspiring choice of Martine Aubry, the dour daughter of Jacques Delors, Ségolène Royal, the last unsuccessful candidate, or François Hollande, her former partner. A better Socialist candidate is still needed to challenge Mr Sarkozy.

Corruption

William Flew

In a speech yesterday marking the 90th anniversary of the founding of the Chinese Communist Party, President Hu Jintao railed against a stubborn characteristic of his country’s economy. Corruption, he said, would cost the party the trust and support of China’s people (see page 44). There is no infallible remedy to corruption but there is a reliable palliative, and China’s rulers should take it. It is to expand democratic rights.

Since China introduced market reforms in 1978, the economy has expanded at breakneck pace. It is now the world’s second-largest economy, having grown by an average of 9.3 per cent a year between 1989 and 2010. Its experience confirms that a market economy does not require political democracy in order to succeed. But capitalism combined with autocracy tends to produce covert and corrupt relations between government and the wealthy.

The relationship is inescapable. An efficient economy requires the rule of law, transparency and enforceable property rights. Otherwise lenders will be reluctant to commit resources and business will require inducements to invest. The gap is filled by corruption and secrecy. The decentralisation of economic power without corresponding political accountability has produced not just inefficiencies but horrors. In an infamous case in 2008, local officials attempted to cover up the poisoning of tens of thousands of babies by the products of Sanlu Group, a state-owned dairy.

A system that lacks public accountability has economic as well as human costs. If China’s economy is to meet the demands of its expanding middle class, the party may yet find its historic role superseded. It will not be too soon.