Author: Danny Popescu | February 14, 2022
Prior to the last week’s announcement, inflation expectations have been heavily influencing capital markets. After the announcement from the Bureau of Labour Statistics, inflation continued to dominate market influences. Year-over-year U.S. consumer inflation exceeded most analysts’ predictions and grew by 0.6% in January to 7.5%. Prices rose 0.5% in December.
Overall, U.S. consumer inflation sits at its highest level in forty years. Core inflation, which does not include the two most volatile consumer categories, food, and energy, grew by 0.6% to 6.0%. Supply chain interruptions and disruptions can no longer be blamed entirely for inflation as increases have moved to housing, rents, food, and electricity, which have a services and domestic bias. Consequently, inflation will persist beyond supply chain easing and test the Federal Reserve’s already strained patience. https://www.bls.gov/news.release/cpi.nr0.htm
Inflation is rising as Gross Domestic Product (GDP), grows at above-average speed. Real wages continue to do so as well.
All of this data increases the expectation for interest rate increases from both the Federal Reserve and the Bank of Canada. Typically, rate increases of 25bps are the norm, but speculation is increasing that the initial increase could be 50pbs.
These monetary policy moves will temper equities, which are already suffering in 2022 from the speculation that increasing and high inflation will lead to interest rate hikes.
In Canada, December’s retail sales, wholesale trade, and international securities transactions, and January’s housing starts, existing home sales, MLS Home Price Index, manufacturing sales and new orders will be released this week. The latest inflation numbers through the CPI will be announced on Wednesday.
In the U.S., a number of economic indicators, including retail sales, import prices, industrial production, business inventories, housing starts, and building permits, are scheduled for release.
Globally, Japan’s real GDP, trade deficit and CPI, China’s Consumer and Producer Price Indexes, Eurozone industrial production and consumer confidence will be announced.
We continue to position client accounts defensively with a healthy balance of quality public securities as well as their private counterparts.
Enjoy your week.
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