MARKET COMMENTARY

Inflation Surprise This Spring?

Nine years of economic expansion and inflation nowhere to be seen—until now? We spot inflation sightings and highlight the potential impact on bonds and equity markets.

04.30.2018 - Giles Marshall, Vice President, Portfolio Manager,

Inflation Surprise This Spring?

As the economic expansion grinds into its ninth year—already the third longest expansion since 1854 —perhaps the greatest conundrum for central bankers, economists and investors has been the absence of any obvious inflationary pressures. Despite quantitative easing, ongoing low to negative real interest rates, narrowing output gaps (the difference between actual and potential economic output) and tight labour markets, inflation has remained remarkably subdued.

In the United States, for example, where economic expansion is the most advanced, inflation remains below the Federal Reserve Board’s (the Fed’s) 2.0% target. The Core Consumer Price Index was up 1.8% year-on-year to December and the Fed’s preferred measure of inflation—the Core Personal Consumption Expenditure Deflator—was up only 1.5% year-on-year. Elsewhere in the developed world, December core measures of inflation were 1.5% in Canada, 1.3% in the eurozone and 1.0% in Japan.

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Giles Marshall, Vice President, Portfolio Manager,

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