Energy crunch stokes inflation, economic recovery woes

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    BEIJING- Authorities from Beijing to Delhi scrambled to fill a yawning power supply gap on Tuesday, triggering global stock and bond market wobbles on worries that rising energy costs will stoke inflation and curtail an economic recovery.

    Power prices have surged to record highs in recent weeks, driven by shortages in Asia and Europe, with an energy crisis in China expected to last through to the end of the year and crimp growth in the world’s second-largest economy and top exporter.

    China on Tuesday took its boldest step in a decades-long power sector reform, saying it will allow coal-fired power plants to pass on the high costs of generation to some end-users via market-driven electricity prices.

    Pushing all industrial and commercial users to the power exchanges and allowing prices to be set by the market is expected to encourage loss-making generators to increase output.

    The impact of supply crunches in power and manufacturing components is showing up in data from Tokyo to London, adding to a deepening disquiet in global markets and underscoring the difficulty in cutting the world’s dependency on polluting fossil fuels a month before global climate change talks.

    A sell-off in global stocks and bonds extended into Tuesday, taking short-dated US Treasury yields to 18-month highs, while world stocks fell for a third straight day on fears that energy prices were putting a dampener on economic growth.

    Data on Tuesday showed Japanese wholesale inflation hit 13-year highs last month, while shoppers in Britain slashed spending and China recorded a 20 percent drop in car sales.

    The International Monetary Fund cut growth outlooks for the United States and other major industrial powers citing persistent supply chain disruptions and pricing pressures.

    China’s latest reform follows a raft of measures including urging coal miners to boost output and manage electricity demand at industrial plants to tame the record-high coal prices and to ease the power crunch across the country, with utilities unable to keep up with post-pandemic demand.

    And in a move that could push up already high global prices, India has asked power producers to import up to 10 percent of their coal needs and has warned states that their power supplies will be curbed if they are found selling electricity on power exchanges to cash in on surging prices. – Reuters