Mark Lamonica: Welcome to another edition of Morningstar Minute, Vesna. We’ve had a lot going on. Why don’t we start with earnings? We’re getting to the tail end of US earnings season. What has been your reaction—and the market reaction—so far?

Vesna Peroska: Yes, good place to start. Coming into earnings season, the focus had really been on the big tech stocks, and they haven’t disappointed. Earnings have surprised to the upside and been above expectations. And just to note, this wasn’t only across the big four companies that reported last week, but also more broadly across the index.

The standout was Alphabet, where they managed to grow their Google revenues after strong growth last year. That was received very well by the market, and the company performed quite well after that. Alongside Alphabet was Amazon, another business that performed strongly and has been monetising its AI investment quite effectively.

On the other side, despite reasonable announcements, Microsoft and Meta were met with a bit more disappointment or skepticism from the market. While all of these businesses announced growing AI capex, Meta and Microsoft weren’t rewarded for it. The concern is whether they can continue monetising that investment, or whether there’s a clear runway for returns.

More broadly, we’re also seeing the effects of that investment spread. Across industrials and utilities, there are signs that the benefits are broadening out across the economy.

Mark: And how do you see that evolving? We’ve been hearing the same story—these large capital expenditures and the search for ways to monetise them. But AI is being used across many industries now. Are we starting to see increased efficiency, as you mentioned, and a broader investor focus?

Vesna: The initial benefits have really come from investment in AI infrastructure. If you think about industrials like Caterpillar, which reported earlier, they’re benefiting from that demand. Utilities as well.

For broader businesses, there’s still a runway in terms of how and when the full benefits of AI spend will come through. That’s still somewhat uncertain at this stage.

Mark: We should talk about inflation, because that’s front of mind for many investors—both in their personal lives and in terms of markets and central bank policy. Can you walk us through the latest inflation data and what it’s telling us about the economy?

Vesna: The inflation data from the US and Australia over the past week has surprised to the upside. It shows that oil price increases are clearly filtering through into inflation. That’s not unexpected, as this is backward-looking data.

Consumers are definitely feeling it, and you can see that in sentiment data. Despite relatively strong employment and wage growth in the US—and similar employment conditions in Australia—consumer sentiment hasn’t reflected that macro strength.

That often signals what might come next. The oil price increases are largely driven by supply constraints, particularly due to events in the Middle East. Those constraints are likely to persist longer than equity investors have been willing to acknowledge, as they’ve remained focused on the AI investment story supporting markets.

Mark: And when we talk about inflation, we also talk about central bank policy. The RBA raised rates today, which was expected. What’s the outlook for the rest of the year?

Vesna: Yes, the rate rise was widely expected. The aim is to dampen inflation that could otherwise harm the economy. The RBA is trying to be proactive, given the strength in recent inflation data.

However, when inflation is driven by supply constraints—like we’re seeing with oil—monetary policy is less effective. There’s a saying that high prices cure high prices, but the demand destruction required to achieve that can be quite damaging.

So the RBA faces a balancing act. They need to manage inflation pressures without pushing the economy into recession. Otherwise, we could end up in a situation where oil prices remain high while economic growth weakens—a very difficult scenario to navigate.