Weekly Brief: Inflation Data’s Finally Giving Us Something To Celebrate

Weekly Brief: Inflation Data’s Finally Giving Us Something To Celebrate

over 1 year ago3 mins

Mentioned in story

Big Tech companies are laying off workers left and right, and the crypto world looks more like a telenovela by the day. So when it comes to inflation, it might be worth celebrating the small wins.

🕰 Recap

  • Meta announced it was laying off 13% of its workforce on Wednesday, pushing CEO Zuckerberg to apologize profusely
  • And after Thursday’s inflation data was less scolding than expected, markets reacted with a deafening cheer
  • Meanwhile, it was a dramatic week in crypto, with Binance dipping out of its white knight rescue of FTX after a quick glance at the struggling firm’s finances

✍️ Connecting The Dots

There’s bad inflation and there’s not-so-bad inflation. Let us explain: inflation caused by meaty food and energy costs isn’t so worrying, because their price increases should level out over time as supply catches up or demand gets clipped. But it’s prices that are rising in response to blistering demand that economists lose sleep over: this “demand-pull inflation” happens when folk fork out more for goods with no sign of cutting back. This habit tends to get etched into our psyches, and it can lead to prices spiraling out of control.

Thing is, shoppers can only spend more if their paychecks allow it, which is why rate-setters keep a keen eye on the labor market, and wage growth in particular. Until recently, American firms had been pumping up their salaries to attract the best workers in a tight job market, but both Twitter and Meta have now announced bold plans to lay off thousands of workers. That might not sound like good news, but those big layoffs could be a sign that the scorching labor market is beginning to cool.

That would be more welcome news for the Federal Reserve (the Fed), which likely has a fresh spring in its step after Thursday’s better-than-expected inflation data. October’s prices were “just” 7.7% higher than the same time last year – the slowest pace of year-on-year price rises since January. That’s revived hopes that the Fed might be able to ease off the rate-hiking pedal in the months to come, and that optimism explains why stock and bond prices immediately ripped higher after the data was released.

🥡 Takeaways

1. Hope springs eternal.

Thursday’s inflation data will gas up optimists who proclaim that inflation has peaked. For one, they believe we’ve passed the worst when it comes to rising costs for food and energy. And for another, they say that as folk tend to renew their rental leases only once a year, a deteriorating housing market and falling rent payments are yet to show in the inflation data. But those refusing to don the rose-tinted glasses will argue – rightly so – that monthly inflation data is yet to show any sort of trend. After all, increases in core prices – which exclude volatile food and energy costs – were slowing down during the summer, only to jump back up again in August and September.

2. It’s all politics.

American voters headed to the polls for the midterm elections this week, and there was a lot at stake. See, the incumbent president’s approval rating is far from pretty, so the Republican party was expecting big things. Now, the votes are still being counted, but it doesn’t look like that predicted “red wave” will materialize – in fact, congress will likely be split. That matters in the short term: markets don’t like politicians interfering in their business, and a split congress means it’s less likely that any unfriendly policies would make it into law.

🎯 Also On Our Radar

The so-called streaming wars are only getting bloodier: Netflix and Disney have been slugging it out for the top spot, and while Disney’s results from this week showed that its streaming service is still luring in more subscribers, it’s doing so at an almighty cost. Shareholders aren’t convinced it’s worth it: Disney’s stock price is back to levels last seen during the depths of the pandemic crisis – and only in 2015 before that.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG