Talking Points This Week: How Inflation ‘Fed’ Into IPL
In ‘Talking Points This Week’, Niraj Shah studies how top business leaders and market makers are navigating the fast-changing financial landscape.
Rapidly rising inflation can act as a devastating weapon on economies. Take Venezuela, for example. In 2021, Venezuela's annual inflation rate hit 686.4%, and the median yearly salary was equivalent to $29,864.58, which is negligible under hyperinflation. Or Germany in the 1920s, where the exchange rate between the U.S Dollar and the Papiermark was one trillion marks to one dollar in 1923, which caused instability in society and is seen to be a significant factor in Adolf Hitler's rise in Germany. There are murmurs around how an inflation-led recession could cost U.S. President Joe Biden a second term.
This week, we discuss inflation from all its angles, bad... and good. What good comes of rising prices, you ask? I need just point to the Indian Premier League and everyone that earns from it. We discuss that big development this week, along with a whole bunch of inflation statistics and central banking moves around the world.
Roaring Inflation, But...
U.S. inflation rose to a fresh four-decade high of 8.6% in May, with the indexes for shelter, gasoline, and food being the largest contributors. The Reserve Bank of Australia says that inflation there will likely reach 7% by the end of the year from 5.1% of the last print. Europe, too, has been jolted by a substantially high inflation print, which could worsen with possibly gas supply cuts to many countries, and the war continuing on the continent.
That's the bad news. The slightly good news is that India's retail inflation fell to 7.04% in May from an eight-year high of 7.8% in April, helped by a supportive base effect. Sequentially, the pace of price increases remained elevated with India's consumer price inflation index rising 0.94% over a month ago.
UBS notes that global bottleneck pressures are easing. Analysts there find that after stalling in March-April due to a mix of disruptions related to China and the Russia-Ukraine crisis, the UBS global supply chain stress indicator resumed its easing in May, with elements such as delivery times and shipping costs showing a decline. Risk asset investors would hope for more of these green shoots because at first glance, the global indicators on inflation are not very pretty, to say the least.
War On Inflation = Recession?
The U.S. Federal Reserve did hike its policy rate by 75 basis points. So, the 'leak' scooped by the Wall Street Journal wasn't off the mark. Chair Jerome Powell signaled another big move next month, intensifying a fight to contain rampant inflation. He said another 75 basis-point hike or a 50 basis-point move, was likely at the next meeting. The FOMC forecast interest rates would rise even further this year, to 3.4% by December and 3.8% by the end of 2023. The 75 bps buzz had set the cat amongst the pigeons in the run-up to the main event. But with Powell articulating that large rate hikes would not be a norm but a rarity, on Wednesday the U.S. markets took a breather from what's been a steady decline, only to be battered heavily the following day.
The Fed acknowledges that higher rates will inflict some damage, though it doesn’t foresee a recession. Analysts disagree and increasingly see a recession looming in the U.S.
Wells Fargo & Co. now forecasts a “mild recession” starting in mid-2023, as inflation becomes more entrenched in the economy and eats into consumer spending power, as the Fed takes more aggressive steps to address it. Moody’s Analytics said that the chances of a soft landing are lower.
IPL Is Bigger Than EPL!
This shift was unthinkable for some, including yours truly, but has happened. IPL concluded the auction of its broadcasting rights on June 14, 2022, with the rights largely divided between two media groups for upwards of Rs 48,000 crore, about three times the cost of the 2018-2022 cycle.
As a result, IPL is now the world's second most expensive sporting event after the American National Football League, ahead of marquee brands like the English Premier League.
Research house Bernstein found that OTT players such as Disney+ Hotstar, garner daily and monthly active user engagement that is around 30-40% higher than average levels, while monthly app downloads are ~1.5-2x more than average.
Mukesh Ambani would be hoping this accelerates even more as he has paid a record sum for the digital rights. The fortunes of his media outfits TV18 and Network18 now depend a lot on the IPL's digital progress.
Niraj Shah is Markets Editor at BQ Prime.
