If you’re struggling for anything original to say about inflation, try this: what’s wrong with 4%, as a target? That’s the rate at which the supercore measure of inflation (the gauge that excludes the more volatile prices of food, energy, and housing) rose in August versus last year. While most pundits concluded that US inflation is still running too hot, and the Fed has more work to do, blah, blah, blah, a growing camp now says the Fed might just need to adjust to a new reality – and maybe that’s an inflation target around 4%. Would it be so bad? It’s not likely to damage the economy, and a bit of inflation can do wonders for anyone carrying too much debt. Food for thought, at the very least.
In company news, by far the biggest event of the week was the much-anticipated return of British semiconductor giant Arm to the public markets. Arm is arguably the most important chipmaker in the world. Nvidia shareholders might laugh that off, but central processing units (CPUs) are in basically everything these days, and pretty much all of them are made using Arm’s technology. Arm’s IPO was oversubscribed – meaning there was more demand for shares than supply – and that’s why the stock soared 25% when it started trading.
In Europe, the ECB popped interest rates up by another 0.25 percentage points as its slugfest with inflation rumbles on. What’s more, the central bank downgraded its economic growth forecast and upgraded its inflation target. And that’s just, ouch. It also printed out this doozy of a statement: “Based on its current assessment, the Governing Council considers that key interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. In other words: rates are going nowhere from here.
Zara owner Inditex’s results showed the trendy chain’s first-half profits surged 40% compared to a year ago. That’s an impressive result, given other retailers are struggling to pass on cost increases to shoppers while simultaneously keeping the cash registers ringing. The secret for Inditex is in its fast-fashion DNA. The firm's locally sourced goods can replenish shelves as fast as the garments fly off them, and that means it can stay ahead of the inflation curve while offering only the newest threads.
When rumors of China banning iPhones for government workers broke, Apple shareholders panicked a little. And it’s no wonder: the country accounts for nearly 20% of Apple’s sales, so even the threat of some sort of ban would be bad news. Other firms with big Chinese sales should watch out too. Until now, the China-US tit-for-tat trade battles have been mostly about semiconductors and other “strategically important” technology. But who’s to say the government won’t suddenly take aim at other industries?
