Must read: UK inflation surge, Deliveroo, Premier Foods, Sage Group

The cost of living has increased at a rapid rate, but what's driving it this month? Our head of investment Victoria Scholar runs through the data and also highlights some of the day's big corporate results.

GLOBAL MARKETS 

European markets are trading mixed with the FTSE 100 outperforming while the DAX in Germany is in the red. Sage Group (The) (LSE:SGE) has hit the top of the FTSE 100 thanks to strong full-year earnings. 

Retailers like Kingfisher (LSE:KGF), JD Sports Fashion (LSE:JD.) and Next (LSE:NXT) are languishing at the bottom of the UK index after CPI inflation outpaced expectations. This adds to cost-of-living pressures facing the consumer, leaving less money left over among households after bills to spend on discretionary items like retail. 

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US stocks closed Tuesday’s trade higher, with US futures pointing to another positive open ahead of key retail sales figures stateside. Shares in Walmart Inc (NYSE:WMT) closed sharply higher after raising its annual forecasts and announcing a new share buyback plan as consumers make the most of its discounted offers. Meanwhile, former US President Donald Trump announced his 2024 presidential bid. 

Plus, geopolitical tensions escalated overnight when two people were killed after a missile exploded in Poland. On that back of this, safe-haven assets including gold have caught a bid.

UK INFLATION 

UK CPI inflation rose to a fresh 41-year high of 11.1% in the 12 months to October, up from 10.1% in September. On a monthly basis it rose 2% in October versus 1.1% in October last year. Despite the government’s Energy Price Guarantee, gas and electricity prices made the largest upward contribution while rising food prices also contributing heavily. Without the Energy Price Guarantee, electricity, gas, and other fuel prices would have risen by nearly 75% between September and October instead of 25%, which would have taken CPI inflation to approximately 13.8%. Food and non-alcoholic beverage prices rose by 16.4% in the 12 months to October, the highest since September 1977.

Downward contributions to the inflation rate came from lower prices of motor fuels and second-hand cars. On the producer side, in the year to October, the cost of goods leaving factories rose by 14.8% down from 16.3% and the cost of raw materials rose by 19.4%, slowing for the fourth consecutive time from 20.8% last month. 

This morning’s data appears to tell two stories. 

The first is that inflationary pressures continue to take their toll on the consumer as gas, electricity and food in particular add to the cost-of-living with CPI outpacing expectations. The rising cost of essential items means poorer families are unfairly getting hit harder, with the inflation gap between high and low-income households reaching the widest since March 2009. 

However, for businesses, the picture looks more rosy. Producer input prices and factory gate rises appear to be showing an encouraging trajectory, slowing month-on-month with downward contributions from metals, crude oil, and chemicals.  PPI has now slowed for the third month in a row.  

Inflation continues to be the most pressing near-term economic challenge facing the Bank of England and the government, which no doubt chancellor Jeremy Hunt will focus on in his Autumn Statement tomorrow. He has already said this morning ‘we cannot have long-term sustainable growth with high inflation.’ 

The government is looking at a raft of spending cuts and tax increases in a contractionary fiscal plan that will support the Bank of England’s rate hiking trajectory, as both aim to bring inflation back down under control.

DELIVEROO 

Deliveroo (LSE:ROO) has pulled out of Australia amid tough competition as it looks to streamline its business and focus on more profitable markets. There are many rivals in Australia like Uber Eats and DoorDash which makes fighting for a slice of market share more challenging and costly. 

The food delivery business has already exited other markets including Germany and Spain for various reasons. There are concerns that Deliveroo is not well positioned to weather the economic downturn, with takeaways a discretionary spend that consumer can easily slash as belts tighten. With soaring inflation rates, the cost-of-living crisis, rising mortgage costs and depressed consumer confidence, households are seeking ways to make cutbacks with Deliveroo in the firing line. 

The company has had a rough ride ever since its disastrous IPO in March 2021. Shares are down by two-thirds over a one-year period, although they have been attempting to regain ground lately, up over 20% in the last months thanks to broader risk appetite and accompanying demand for equities.

PREMIER FOODS 

Premier Foods (LSE:PFD) reported adjusted first-half profit before tax up 11.9% to £47 million, while revenues rose by 6.2% putting the Mr Kipling cake maker on track to deliver its full-year guidance. Despite pressures on costs the parent company of Bisto, Cadbury and Oxo said it expects margins to remain in line with the prior year after a strong first half performance. 

The cost-of-living crisis that is squeezing consumers coupled with rising input costs on the back of problems with the global supply chain and the war in Ukraine have created a raft of challenges for the food conglomerate. Although it expects inflation pressures to remain elevated, Premier Foods has managed to defy the doom and gloom with top and bottom line growth in the first half and an optimistic full-year outlook by successfully implementing cost savings and annual price increases in the fourth quarter. 

Investors are weighing up the flagged macroeconomic headwinds against the better-than-expected performance, resulting in shares trading modestly lower in today’s trade. Shares have proven to be relatively resilient this year, trading only slightly weaker year-to-date and up over 10% over the last month.

SAGE GROUP 

Shares in Sage Group are trading higher after it reported full-year organic profit up 8% to £383 million on revenues up 5% to £1.94 billion. The software company said it expects organic revenue growth to be ahead of last year with operating margins expected to trend upwards. JP Morgan raised its price target on the stock following its results this morning. 

Shares in Sage Group have performed well lately, rallying by more than 15% over the past six months. The software company is focusing on scaling the business, helping to underpin margin growth and profitability. Its cloud business fared particularly well with growth of 24% despite pressures from the macroeconomic uncertainties flagged by CEO Steve Hare.