In the space of six weeks: •  the remaining four large American investment banks disappeared – into bankruptcy, merger or by taking a banking licence, which gets them closer to the support of the Federal Reserve;  •  one of the world’s largest insurance companies, hit by a wave of margin calls on credit default insurance contracts it had written, had to take a loan from the Federal Reserve and is effectively in public ownership;  •  the largest participants in the US mortgage market, which had always been seen as implicitly government guaranteed, were explicitly nationalised;  •  the US Treasury brought forward a plan to purchase assets from lenders’ balance sheets for a sum of up to 5 per cent of US GDP.
This reflects the impact of higher-than-expected prices for crude oil and natural gas, continuing increases in auto insurance premiums, and price pressures in certain sectors, such as housing, food, and some services. The higher inflation also suggests an underlying firmness in the price-setting environment. In other words, relative price increases wouldn't be pushing up trend inflation if there was not sufficient demand.