Inflation, Equities, and Billionaires

Yesterday, the US producer price index rose unexpectedly to 0.5% on a month-on-month basis over April, in the latest sign that inflationary pressures continue to present a challenge to businesses and policy makers within the world’s largest economy.

The rise in the index to 0.5% came against expectations of a more muted 0.3% print, and represented a considerable uptick from last month’s deflationary print of -0.1%.

The rise in PPI also came as the cost of goods cost rose 0.4% on the month assisted by the rise in gasoline prices. Meanwhile services increased 0.6% on the month, though food prices subsided.

The rise in inflation serves as further indication that the Fed’s fight against inflation is far from being won and gives credence to the idea that the central bank may have to hold rates higher for longer.

Attention now turns to the latest US CPI print at 13:30 today where the market consensus is pointing to a headline print of 3.4%. If realised, this would represent a 10bps decrease from last month’s level though would still be higher than that seen in January and February, again indicative of how the course of inflation easing may not be linear.

Policy makers will however be hopeful that core inflation will ease to its lowest level since April 2021, with the market consensus forecasting the index slowing down from 3.8% in February and March to 3.6% in April.

As markets gear up for today’s key US inflation print, yesterday saw equity markets broadly higher. In the US, the Nasdaq closed as record highs, surpassing its previous peak reached on 11 April. This came as Alphabet rose 0.7% following a fresh announcement over how AI is being used across Google and its Gemini chatbot. This was a far cry from Alibaba, whose US listed shares fell 6% following its reports of an 86% drop in Q4 profits.

Elsewhere, the S&P 500 closed just 10bps below its record highs while the Dow Jones advanced on the day ahead of closing 100bps below is own record highs.

Sticking with US equites, there was another ‘Meme-stock frenzy’ (as reported by Bloomberg), where intraday trading saw shares in GameStop rose as much as 113%. Shares ultimately closed 60% higher while AMC entertainment also rose 32% on the day.

Gabriel Zucman has written an Op-Ed in the New York Times advocating for a global minimum tax to be applied to the world’s wealthiest billionaires. Zucman’s research concludes that “the ultrawealthy consistently avoid paying their fair share of taxes” and uses the example of the how effective tax rate of billionaires in the Netherlands is just 17%, against the average earners’ 45%.

In identifying how billionaires derive their fortunes from their wealth (as opposed to their salaries) Zucman suggests that a global minimum tax on billionaires would have to be applied to their wealth. (Here, he uses the example of how Jeff Bezos earned a salary from Amazon of just $81,840 in 2019)

Zucman suggests taxing 2% of billionaires wealth each year and says that the end goal is that “only those who dial down their income to dodge income tax would be affected”.

According to his data, a 2% wealth tax on the worlds billionaires would equate to an additional $250 billion in tax receipts globally (which is a higher amount than that which would be levied from the global minimum tax on corporates).

For more on his article, follow the link here.