UBS Morning audio comment: Peculiar US price increases
Per the full note from UBS GWM Chief Economist Paul Donovan, the desk is flagging a peculiar set of US price increases — in airfares, computer equipment, and software — that are being blamed on oil and AI but are not mirrored in other economies, which the desk frames as evidence of profit-led rather than globally driven inflation. The supporting evidence is stark: real incomes have stagnated since January 2025, wage pressures are 'obviously absent,' and energy-cost pass-through remains the only clearly identifiable driver. The implicit rejection is that this is a global-trend inflation story; if it were, other countries would be seeing the same airfare and tech-price surges, and they are not. Consumer reliance on side-hustle income, lower savings rates, or drawing down savings is the marginal funding source for spending, which makes today's retail sales print a key read on consumer resilience. US producer price data is the more relevant measure for company earnings, per Donovan, since firms sell to firms rather than to consumers. No internal coverage data on the relevant currencies and no high-impact calendar events in the next 30 days constrain the tradable read here.
What the desk is arguing
Per the full note from UBS GWM Chief Economist Paul Donovan, the desk's thesis is that US inflation is being driven by profit-led dynamics in specific sectors — airfares, computer equipment, and software — rather than by the global trends those price increases are publicly blamed on. The desk frames this as a 'peculiar' divergence: if oil and AI were the true drivers, other economies would be showing the same increases, and they are not. The alternative read — that this is broad, imported, cost-push inflation — is what the desk is implicitly rejecting.
The supporting evidence the desk leans on is the stagnation of real US incomes since January 2025, combined with the complete absence of wage pressures, per Donovan. Energy costs are still being passed through and remain the identifiable inflation channel. Consumer spending in this environment depends on one of three things: side-hustle employment, a willingness to cut savings rates, or drawing down the existing stock of savings. Today's retail sales data is the test of which of those is actually happening.
The counterfactual the desk sets aside is that airfare and tech-price surges are the leading edge of an AI-driven capex cycle that will bleed into other economies with a lag. Donovan's framing implies that if that were true, the cross-country price divergence would already be narrowing — it is not, which is why the desk calls the increases 'peculiar' rather than 'leading.'
Where it sits in our coverage
There is no internal coverage consensus for the currencies implicated in this commentary — no tracked pair was identified in the source note, so no per-firm targets or spread are available to anchor the UBS view against.
Accordingly, we cannot say whether the desk's profit-led-inflation read sits above or below the cross-firm spread, and we are not attaching firm identifiers to a thesis that has no tracked-pair anchor.
How other firms see it
No per-firm forecasts are available for the currencies referenced in the source, so we cannot group aligned or contrary houses around the UBS view on profit-led US inflation.
What we would watch for intersection is the trajectory of the US dollar against the euro and yen, the Federal Reserve's reaction function to a profit-led versus wage-led inflation mix, and the US producer price index as the earnings-relevant inflation gauge Donovan names.
What the calendar says
No high-impact events are scheduled in the next 30 days for the jurisdiction implicated by this commentary, so there is no near-term catalyst to cross-reference against the desk's profit-led-inflation call.
Key takeaways
- 01UBS GWM's Paul Donovan argues US airfare, computer equipment, and software price surges are profit-led, not globally driven — other countries are not seeing the same increases.
- 02Real US incomes have stagnated since January 2025 and wage pressures are 'obviously absent,' per the note, removing the wage-cost channel from the inflation debate.
- 03Consumer spending now depends on side-hustle income, lower savings rates, or drawing down savings — today's retail sales print is the read on which.
- 04US producer price data is the more earnings-relevant inflation measure than CPI, per Donovan, because firms sell to firms not consumers.
Market implications
Watch today's US retail sales print as the confirming or disconfirming signal for the savings-drawdown thesis, and watch the US producer price release for the earnings-relevant inflation read. If producer prices confirm profit-led inflation in airfares, computer equipment, and software without wage pass-through, the dollar's rate-differential support is likely to be sector-concentrated rather than broad. In the absence of any tracked-pair consensus, treat the read as a thematic overlay rather than a directional FX trigger.
Risks to this view
The call is invalidated if US wage pressures emerge in a subsequent employment cost or average hourly earnings print, which would convert the story from profit-led to wage-led and force a repricing of Fed policy. It is also invalidated if other economies begin to show the same airfare and tech-price increases with a lag, which would confirm the global-trend explanation the desk is rejecting. A further risk is that the retail sales print shows consumers drawing down savings faster than expected, which would signal a demand-side inflation impulse distinct from the profit-led thesis.
Some areas of US inflation are blamed on global trends. Strangely, other countries are not having the same increases. View this email in a web browser Peculiar US price increases UBS morning audio comment by Paul Donovan The US inflation print underscored some established trends.
While consumer price inflation has a large fantasy component to it, it seems fairly clear that real incomes have stagnated since January 2025. That means that increases in spending depend on people getting side-hustle employment, being willing to cut savings rates, or being prepared to use their stock of savings. Today’s retail sales data is another signal of how willing consumers are to utilize savings.
The inflation is still oil focused (with energy costs being passed through). Wage pressures are obviously absent. Is profit-led inflation emerging?
US airfares, computer equipment, and software prices have been surging, blamed on oil and AI. However, other countries are not seeing the same sort of price increases. Ukraine’s President Zelenskyy has said bombing of Russian diesel refineries will resume.
This does not necessarily alter diesel prices—US President Trump’s deal with Russia’s President Putin did not impact markets much—but it does weaken the political spin around prices. UK August economic activity data was stronger than expected. This animates the handful of people who find UK fiscal policy exciting.
US producer price data is due for release— which is the more relevant measure for company earnings (companies generally sell to other companies, not consumers). Read important disclaimer 〉 Listen to today's Thursday, 15 October update Listen now 〉 Recommended content Listen to past recordings in Paul Donovan's daily updates 〉 Nobel Perspectives - Exploring the questions that shape our world 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O.
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