Daily Brief: “High Prices Are Just A Phase,” The Fed Told Us…

Daily Brief: “High Prices Are Just A Phase,” The Fed Told Us…

almost 2 years ago3 mins

Data out on Wednesday showed that US consumer prices rose more than expected last month, even though the Federal Reserve thought this “doom and gloom” thing was just a phase.

What does this mean?

Not to bring you down or anything, but woe is us: airfares surged 33% last month from the same time last year, food by 9%, and shelter by 5%. That all contributed to a higher-than-expected increase in overall consumer prices of 8.3%. And sure, this marks a slowdown from March’s 8.5%, which has some economists arguing that we’re probably past peak inflation. But equally, it highlights that any dropoff in prices is bound to happen painfully slowly. And we’re going to feel every bit of it, with inflation-adjusted wages falling 2.6% last month from the same time in 2021. Existence is meaningless.

US inflation

Why should I care?

For markets: Are US stocks falling out of favor?

Investors have already had to deal with one of the worst starts to the year for stocks since 1939, but this bleak data suggests things could get much worse. It might force the Federal Reserve to raise interest rates quicker than expected to make more of a dent in inflation – even if it comes at the expense of economic growth. That might be why some traders are now betting on a fourth-straight hike of 0.5% in September, and why some analysts reckon the US stock market – down 17% so far this year – could fall as much as 20% further.

Zooming out: Are Chinese stocks back in favor?

America stands in stark contrast to China, where consumer prices only rose 2.1% last month compared to the same time in 2021. That could leave room for its central bank to, say, slash interest rates, which should encourage spending and boost economic growth. And with Covid cases showing signs of tailing off, investors seem to see value in the country once again: its stock market rallied on Wednesday.

China inflation

Keep reading for our next story...

Toyota Gave A Grim Outlook For This Year

Toyota image

Toyota announced on Wednesday that it had sold a near-record number of cars in its past year, but the carmaker will need those acorns of success to get through the bitter winter ahead.

What does this mean?

Toyota’s sales have gone through the automatic roof, with the company selling a near-record 9.5 million cars in the past financial year. It posted the highest-ever operating profit for a Japanese company too, thanks to a rival-beating formula of cost-cutting measures. But the past is the past: the carmaker now reckons raw material prices will double this year from last, when they were already at an all-time high. That, the carmaker said, will drag its profit down by 20%, even as it expects to sell 13% more cars and continue to benefit from a weaker yen. And while Toyota is known for giving conservative forecasts, this one was outright Republican: investors sent its stock down 6%.

Toyota profit
Source: Bloomberg

Why should I care?

The bigger picture: Everyone’s agreed, then.

Toyota’s acute pessimism is mirrored by industry analysts, who have been warning about the risks to carmakers in the next 12 months. Market research firm IHS Markit has downgraded its forecast for global vehicle production twice in as many months, based on things like the war in Europe, the fallout from Chinese lockdowns, and the languishing microchip recovery. Jefferies’ analysts, meanwhile, argue that still-high inflation and an impending slowdown in global economic growth might put would-be car buyers off altogether.

Zooming out: Shut up and don’t drive.

There are already signs that China’s drivers are stepping away: data out this week showed that car sales in the world’s biggest market fell 36% last month from the same time in 2021. That’ll happen when you lock down carmaking hubs like Shanghai, bringing production to a halt and keeping buyers out of showrooms…

China car sales
Source: The Wall Street Journal, China Passenger Car Association
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