Daily Brief: US Inflation Dashed All Hopes

Daily Brief: US Inflation Dashed All Hopes

over 1 year ago3 mins

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Data out on Tuesday showed US consumer prices rose more than expected last month.

What does this mean?

Delighted by July’s lower-than-expected inflation, hopeful economists thought August's outlook might keep the good energy going. Well, it didn’t: energy prices might’ve fallen 5% from the month before following a well-needed 11% drop in gasoline prices, sure, but that boon was offset almost everywhere else. Food prices and medical services were up 0.8%, while accommodation-related costs – which make up a third of overall inflation – saw their highest uptick in about 30 years. All in all, then, US consumer prices rose 0.1% in August, not quite the 0.1% drop economists predicted and enough to mark a worse-than-expected 8.3% gain from August last year.

US inflation

Why should I care?

The bigger picture: Pass the hiking boots.

Energy’s been a key inflation driver in the US this year, but those prices are finally cooling down now. Shame, then, that rising costs everywhere else are fanning the flames instead, signaling that once-concentrated inflation has spread and now won’t be as easily extinguished. That might be why markets have now fully priced in a 0.75% hike from the Federal Reserve (the Fed) next week, and taken any previous 0.5% bets completely off the table. Some, predicting a more aggressive strategy, even think there’s a 10% chance the Fed could hike rates by a whole percentage point.

US prices

For markets: Investors are fed up.

Investors will be frustrated by the prospect of a longer, more aggressive interest rate campaign designed to rein in increasingly stubborn inflation. After all, the value of any stock is the value of its future earnings discounted back to today – but those future earnings are worth less as interest rates rise. That could be why the S&P 500 fell 2.6% after the news broke, while the Nasdaq – chock-a-block with tech companies that are ultra-sensitive to rate hikes – fell a whopping 3.3%.

Keep reading for our next story...

Oracle’s Latest Revelation

Oracle image

Oracle reported strong quarterly results from its cloud business earlier this week.

What does this mean?

Oracle’s been plodding away in the database and software scene for years, so investors are wondering if a better-late-than-never push into the fast-growing cloud space can breathe new life into the tech company. The signs look promising: Oracle’s cloud segment posted revenue 45% beefier than the same time last year, and 29% when you strip out sales from its $2 billion-odd purchase of medical records provider Cerner last year. Oracle's newest growth engine comes with real potential: the healthcare industry’s a little behind the cloud trend, so Oracle’s hoping Cerner can help it profit from a swell of companies poised to up their cloud spending. Founder Larry Ellison is certainly optimistic on all fronts, saying on Monday that Oracle’s fit to nab customers from its bigger rival Amazon.

Oracle cloud revenue

Why should I care?

Zooming out: Everything you can do, I can do better.

Oracle plumping its organic cloud growth up 29% is no small feat, especially as businesses are cutting back over fears of a recession. But you can bet big dogs like Amazon, Microsoft, and Alphabet will want to trump that: they boasted bumper revenue growth between 30 and 40% last quarter, and they’ll want to keep that up – allowing for a slight drop-off given the disastrous state of the world – when they report this quarter’s earnings in the coming months.

Zooming in: Oracle’s the underdog.

Oracle's making headway now, but it took its time warming up to cloud-based solutions. So despite its recent efforts, Synergy Research Group estimates it still lags behind speedier rivals with under 5% of the cloud market. There’s a silver lining though: unlike Amazon and Microsoft, Oracle’s share price hasn’t yet reflected its cloudy achievements – or its founder’s sky-high hopes. So investors could soon spot the firm’s mounting momentum in the space, and give its share price a shot in the arm.

Cloud market
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