Daily Brief: Is US Inflation Finally Peaking?

Daily Brief: Is US Inflation Finally Peaking?

almost 2 years ago3 mins

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Data out on Tuesday showed that US consumer prices rose by the most in more than 40 years last month, but at least there are signs that it’s all downhill from here.

What does this mean?

This was the first inflation report to take into account both the Russian invasion of Ukraine – which has driven energy prices to dizzying highs – and China’s latest wave of lockdowns, which have taken their toll on already-hampered supply chains. So of course the US government had pre-empted the report by warning that the number would be “extraordinarily elevated”. It wasn’t wrong: US consumer prices were 8.5% higher in March than they were the same time last year – up on February’s 7.9%, and the biggest jump since December 1981. Worse still, wages just aren’t keeping up: inflation-adjusted earnings fell 2.7%.

US inflation adjusted earnings
Source: The Wall Street Journal

Why should I care?

For markets: Is inflation peaking?

This is the 13th-straight month that inflation has been above the Federal Reserve’s (the Fed’s) longstanding target of 2%, but there was a silver lining: monthly core inflation – which strips out volatile items like food and energy – came in at its lowest since September. That matters because some economists see it as a sign that inflation might finally be slowing down, which has got traders betting that the Fed won’t raise interest rates by quite as much as they thought.

Inflation

The bigger picture: Inflation > climate change.

Gas prices drove half of the monthly uptick, so the US government is doing its bit to get those prices at the pump down: it announced plans on Tuesday to allow the sale of gas with higher ethanol content, which sells at around a 15% discount to regular gasoline. That should reduce reliance on foreign oil supplies, albeit with a catch: it’s a dirtier blend, so the government is waiving anti-pollution rules to make it happen.

Keep reading for our next story...

ASOS Saw Its Profit Drop Off A Cliff

ASOS image

ASOS announced on Tuesday that its profit plunged in the first half of its financial year, and investors are starting to realize that fast fashion mightn’t be so good for them after all.

What does this mean?

If you were in the market for sweatpants, pajamas, or onesies during lockdown, ASOS was your one-stop shop. So much so, in fact, that the British online fashion retailer’s profit more than tripled between September 2020 and February 2021. But with rival stores reopening and supply bottlenecks limiting stock, the retailer’s been struggling ever since: sales in Europe were up just 1% between September and February versus the same period the year before, while those outside the US and UK crumbled 10%. That led to a measly 4% uptick in total sales. Throw in higher costs, and suddenly you’re a long way from a threefold profit: ASOS’s profit was down 87% for the six-month period.

Asos stock
Source: Google Finance

Why should I care?

For markets: Fast fashion is wearing thin.

ASOS said it’s expecting sales to pick up again later in the year when it irons out supply kinks, which are particularly prohibitive to its fast fashion business model. But it might not want to get too big for its boots: there are more than a few raised eyebrows around the ethical and environmental impact of fast fashion, and some analysts are estimating that sales of those bargain-basement products could drop off as much as 30% in the next five years.

The bigger picture: Who needs ASOS?

UK retailers more generally aren’t doing particularly well: data out Tuesday showed that sales in the country were just 3.1% higher last month than the same time in 2021, and that the gain was down to higher prices as opposed to more purchases. That suggests that consumers are feeling the cost-of-living crisis, which doesn’t bode well for ASOS: nice-to-haves are usually the first to go when things get tight.

Income squeeze
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