Daily Brief: US Inflation Rose Higher Still, And Don’t Get Us Started On Gas Prices

Daily Brief: US Inflation Rose Higher Still, And Don’t Get Us Started On Gas Prices

almost 2 years ago3 mins

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Data out on Thursday showed that US consumer prices rose by the most in more than 40 years last month, and the country’s drivers aren’t exactly happy about it.

What does this mean?

That summer road trip Americans were planning is starting to look a lot more expensive, with gas prices 38% higher in February than they were at the same time last year. And if that wasn’t enough to put them off the road, this might be: the price of used cars was 41% higher than the same time last year. In fact, the prices Americans paid for goods and services overall climbed by a higher-than-expected 7.9% – the biggest jump since January 1982. And even when you strip out unstable food and energy prices to get to the “core” inflation, you’re still talking about a nearly 40-year high…

Inflation

Why should I care?

For markets: Cue the rate hikes.

Most economists thought inflation would peak in February, but that was before Russia invaded Ukraine. The effects of the war have already sent retail gas prices – responsible for about a third of February’s monthly increase – up nearly 20% this month, and they might not come down for months. So chances are that the Federal Reserve (the Fed) will stick with its plan to raise interest rates when it meets next week – probably in the first in a series of hikes aiming to limit inflation.

Gas prices

The bigger picture: The ECB wavers.

The European Central Bank (ECB) still isn’t ready to follow in the Fed’s footsteps, but it did unexpectedly announce plans on Thursday to withdraw its bond-buying support faster than expected, which could see it ending the program altogether by as soon as the third quarter. The move shows just how concerned the ECB is about the effect of record-high inflation on the region’s economy, and it isn’t the only one: Goldman Sachs cut its 2022 growth outlook for the region from 3.9% to 2.5% this week.

Keep reading for our next story...

Amazon's Splitting Its Stock And Buying Back Its Own Shares

Amazon image

Amazon announced that it’s rolling out a “20-for-1 stock split” this week, which will hopefully be arriving sometime in June between 7am and 9pm.

What does this mean?

Amazon will be splitting each of its shares into 20, meaning every investor who owns a share in Amazon will receive 19 more come June. That won’t change much, mind you: investors will still own as much of the business as they did before, they’ll just have more stocks to show for it. And Amazon threw in another announcement while it had everyone’s attention: the company said it’s planning to buy back $10 billion worth of its own shares – a move that’ll reduce their supply significantly and push up the price of those left over. That went down a treat: investors initially sent its stock up 11%.

Amazon stock split

Why should I care?

For markets: Amazon’s ulterior motive.

One key reason Amazon might’ve opted to split its stock is because the decision could pave the way for its inclusion in the Dow Jones Industrial Average. The Dow is a US stock index that weighs stocks based on their price rather than their market capitalization, which means it tends to avoid expensive stocks that would have an outsized influence on its price. But if Amazon slashes its stock, it’s more likely to be added to the Dow’s roster. That matters: investors plow billions of dollars into passive investment funds that track the index, so they’d be obliged to buy in and push Amazon’s stock even higher.

For you personally: Big whoop.

There’s another reason Amazon might be keen: it should make it easier for retail investors like you – who currently have to stump up nearly $3,000 for one of its shares – to buy into the company. But for all the hype, it’s important to remember that this isn’t exactly revolutionary. Plenty of investment platforms offer fractional investing, after all, so you’ve been able to buy into eye-wateringly expensive companies for a few years now.

Amazon’s last stock split
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