Daily Brief: US Prices Piled Up Last Month, Despite The Fed’s Best Efforts

Daily Brief: US Prices Piled Up Last Month, Despite The Fed’s Best Efforts

over 1 year ago3 mins

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Fresh data out on Thursday showed that US consumer prices rose more than expected last month.

What does this mean?

The Federal Reserve (the Fed) might be aiming its rate hikes at inflation, but the only thing it seems to be hitting right now is the economy: after raising rates five times this year, the combined three-percentage-point bombardment has left markets riddled with more holes than Swiss cheese – while inflation’s stayed relatively unscathed. And sure, inflation has dropped off in areas like energy and used vehicles, but the overall price of goods and services rose by 0.4% between August and September, double the 0.2% economists were expecting and up 8.2% on September last year. Shelter, food, and medical care were the biggest contributors to that gain, which – with inflation-adjusted average hourly earnings down 3% from last year – could make ordinary life extraordinarily expensive.

US inflation
Source: The New York Times

Why should I care?

For markets: Better to fear too far than trust too far.

Minutes from the Fed’s meeting were released earlier this week, and they show that one philosophy reigns supreme: it’s better to do too much rather than too little in the fight against inflation. Translation: there’s plenty more where those hikes came from, especially with prices still on the rise. Traders, already betting on a 0.75 percentage point hike next month, now predict another one come December – which could explain why the S&P 500 dropped when Thursday’s inflation data emerged.

The bigger picture: Winter is coming.

Energy prices might have eased off last month, but that doesn’t mean households will have it easy compared to previous winters. In fact, the Energy Information Administration predicts that higher prices and an especially frosty winter will drive household energy bills skyward. It expects that people who heat their homes with natural gas – over half of US households – will pay 28% more this winter than last, while households that rely on electricity will see an uptick of 10%.

EIA energy prices

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More Turbulence for EasyJet


EasyJet warned on Thursday that it’s set to make a loss for the third year in a row.

What does this mean?

A spoonful of sugar helps the medicine go down, so let’s start with EasyJet’s good news: July to September was a busy period for the airline, with jet-setting vacationers taking over 26 million flights with the carrier. And that figure – 88% of 2019’s pre-pandemic levels – was enough for EasyJet to net a healthy profit in the quarter. Now for the medicine: that high-flying period wasn’t enough to make up for a bunch of flight cancellations and Covid restrictions that ate away at profit earlier in the year. And when you factor in the effect of the surging dollar (many of the airline’s costs are paid for in the greenback), it’s no wonder that EasyJet expects to post a pre-tax loss of as much as £190 million ($210 million) for this financial year. Now, there are some signs that strong demand will continue into this winter and next summer – but not enough to placate investors about what’s set to be EasyJet’s third straight annual loss.

Why should I care?

For markets: Vacay decay.

It looks like Europeans are still living their best lives: not one major airline in the region has reported declining bookings despite widespread economic turmoil, and EasyJet’s arch rival Ryanair actually reported that September was its third busiest month ever. That said, analysts think current strong demand could be short-lived, which might explain why Ryanair and EasyJet’s share prices have fallen by around 50% this year.

EasyJet stock
Source: Google Finance

The bigger picture: Bye bye, small fry.

Analysts at Bernstein predict that Europe’s weaker airlines might not make it through this winter, as countries that rescued carriers during Covid begin to focus their financial efforts on more pressing problems. That’s good news for big fish like EasyJet and Ryanair: they can move in and hoover up customers that collapsing airlines leave behind.



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