What happened

Shares of Carnival (CCL 0.44%) soared in Thursday's trading thanks to better-than-expected inflation data. The cruise line company's share price closed out the day up 14.3%, while the S&P 500 index ended the daily session with a 5.5% gain.

The latest data from the U.S. Labor Department showed that the consumer price index (CPI) rose 0.4% on a sequential basis and 7.7% year over year in October, significantly below the 0.6% sequential increase and 7.9% annual increase that had been forecasted by economists. Slowing inflation could signal that the Federal Reserve will start taking a more dovish approach to interest rates, which would be great news for Carnival. 

A person on a cruise ship looks out across the ocean.

Image source: Getty Images.

So what

Facing challenges created by the coronavirus pandemic, Carnival and other companies in the cruise line industry were forced to take on billions in new debt. Operating headwinds have since eased considerably, but the heavy debt loads remain, and Carnival and other companies in the space have been left with high interest-related expenses, loans coming due, and terrible timing for needed refinancing initiatives. 

The new CPI data has raised hopes that inflation may be moderating. The Federal Reserve has been rapidly raising interest rates in hopes of combating raging inflation, and the combination of macroeconomic headwinds has wreaked havoc on the stock market this year. If the Fed eases off rate hikes, that would likely create bullish momentum for the stock market at large -- and it could also have a significant impact on Carnival's earnings performance in coming years. 

Now what

Carnival has roughly $30 billion in debt on its books and will likely need to continue refinancing some of its loans in the near future. With interest rates rising this year, the company faces the prospect of having to refinance at less favorable rates that wind up eating into the bottom line and creating hurdles for turnaround initiatives.   

The surge for Carnival's stock and the market at large today reflects a belief among investors that inflationary trends may have peaked. If that proves to be the case, the company's share price could enjoy significant pricing gains from current levels, but investors may want to exercise caution. Inflation moderating would certainly be a welcome development, but this year's volatile macroeconomic and geopolitical conditions suggest it's far too early to take the risk of more big rate hikes off the table.