Daily Brief: US Inflation Is Now So High That The Fed Might Need To Take Drastic Measures

Daily Brief: US Inflation Is Now So High That The Fed Might Need To Take Drastic Measures

about 2 years ago3 mins

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Okay, we could do with changing the record right about now: data out on Thursday showed that US consumer prices rose the most since 1982 last month.

What does this mean?

Even for a financial newsletter, we’re using the word “inflation” a lot these days. So here’s an idea: instead of saying “inflation”, let’s use the word “cookies”. Supply shortages and demand for just about everything continued to push up prices last month, with used cars and energy – which cost about 41% and 27% more than they did in January 2020 – accounting for a big chunk of the gains. Rent, clothing, and food were up too: 4%, 5%, and 7% respectively. That drove cookies to a higher-than-expected 7.5% – a 40-year record. See? We’re having more fun already.

US inflation

Why should I care?

The bigger picture: Too little, too late?

The Federal Reserve (the Fed) has already said it’s on track to raise interest rates next month, and data like this will give the central bank more confidence that it’s making the right decision. But some economists think it’ll up the ante and raise rates by 0.5% – rather than the more typical bump of 0.25% – for the first time since 2000. That’d be tantamount to an admission from the Fed that it’s been slow to act and needs to play catch-up.

Zooming out: PepsiCo gets cocky.

One of the reasons food costs are going up is because consumer staples are charging more for their products, and feel confident about doing so because customers need what they’re selling. And it’s clearly paying off, with PepsiCo – which posted quarterly earnings on Thursday – growing its revenue by a better-than-expected 12% last quarter versus the same time in 2020. And even though its outlook for this year wasn’t as strong as expected, investors – who might’ve wanted a piece of that so-called “pricing power” – still initially sent its stock up.

Pepsico stock
Source: Google Finance

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Disney Reported Better-Than-Expected Results

Disney image

Disney reported better-than-expected quarterly earnings earlier this week, as its Genie+ makes good on all of the entertainment giant’s wishes.

What does this mean?

Mickey fans couldn’t wait to flock back to Disneyland last quarter. Literally: visitors were prepared to stump up for the company’s new “Genie+” service just so they could skip the lines. That helped Disney’s resorts segment double its revenue from the same time in 2020, topping pre-pandemic levels.

The magic didn’t end at Disneyland’s gates either: Disney+ added nearly 12 million subscribers last quarter – far more than the 8 million analysts were expecting, and bringing the total to 130 million. And those subscribers were more than happy to fork out for the streaming service, with the average North American viewer paying 15% more last quarter than the same time the year before. That pushed Disney’s revenue up by a better-than-expected 34%, and investors initially sent its shares up 8%.

Disney subscribers
Source: The Wall Street Journal

Why should I care?

Zooming in: Disney’s not resting on its laurels.

Disney’s investors are probably relieved as much as anything, having come into this update worried it’d forecast the same slowing subscriber growth that Netflix did last month. Instead, it revealed it’s going to spend big to keep that from happening: the company is expecting to put as much as $1 billion more into new shows and movies this quarter – part of a plan to reach as many as 260 million subscribers by 2024.

Disney v Netflix

The bigger picture: There’s strength in numbers.

Some analysts argue that Disney needs to think outside the box to sustain last quarter’s momentum, not just throw money at production. After all, Netflix put out two massive crowd-pleasers last quarter – Squid Game and Red Notice – and it’s still expecting subscriber growth to slow down this quarter. Those analysts, then, are suggesting rival streaming sites might eventually need to think about teaming up to sell their products together, rather than competing on price.

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