Page and Associates Ltd.

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Peak Inflation? Annual Rate still high, but monthly rate declines in April.

The US Bureau of Labor Statistics today released Consumer Price Index (CPI) data for the month of April, showing seasonally-adjusted price increase of only 0.3% from March levels. This reaffirms the view of some commentators that inflation should naturally slow from recent record year-over-year rebounds from pandemic-induced price decreases in 2020.

The graph below shows the month-over-month price level change, which has hovered between 0 and 0.5% per month for the past 5-10 years. You can see the negative inflation in 2020 March – May, which took CPI down 1.2% during that period, limiting total annual inflation to only 1.2% for the year. 2021 made up for that as demand for goods surged amid pandemic restrictions on services, and covid-induced supply chain disruption, with a 7% total inflation for the year. Those supply chain disruptions continue into 2022: first quarter 2022 inflation has been just shy of 3%, with 1.2% of that in March alone, with the conflict in Ukraine spiking oil and energy costs, which are feeding through to the price of all goods and services that use them.

(Source: Bureau of Labor Statistics https://www.bls.gov/cpi/latest-numbers.htm )

Some goods prices have started to decline as their supplies become more balanced, used car prices being one example. Historically, oil prices have not stayed much over $100 per barrel for long, and even if they stay at that level, at least they would not contribute directly to further inflation in coming periods. For this reason, some analysts believe we have seen the peak in monthly inflation at 8.5% in March, and that the year-over-year figure, down to 8.3% in April, will continue to moderate as the year continues. This may take some pressure off central banks on the need for interest rate increases.

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Investment Market Commentary 2021 Q2

News Article

Comments from our Investment Committee on recent developments in stock and bond markets, macro-economic indicators, fiscal and monetary policy developments and expected impacts on investment markets.

For your summer reading enjoyment, we thought we would share some recent articles that caught our interest.

Reflation


There’s inflation. There’s deflation. And now, there has been talk over the last couple of months about reflation.

We all have a pretty good idea of what inflation is. When demand exceeds supply, prices rise.

Deflation is the opposite. When you have an abundance of supply and relatively sparse demand, prices fall. And naturally, we saw a lot of deflation in 2020. With people around the world stuck at home for most of the year because of COVID restrictions, large segments of the economy saw a major decline in demand.

So, what’s reflation? It is an act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy back to the long-term trend following a dip in the business cycle. Call it a normalization of the economy. And as 2021 advances, we are going to see the economy get back to normal. With every passing day, a couple million more Americans get vaccinated, and the restrictions that have kept a lid on growth continue to get lifted. This will only accelerate as new COVID cases fall.

Real yields are still deeply negative and the global economy is in the early stages of an expansion fueled by what seems like endless fiscal support. The risk of higher prices is still present.

Click to read the article.
https://www.forbes.com/sites/garthfriesen/2021/06/20/did-the-fed-policy-shift-destroy-the-reflation-trade/

Vaccinations


So far, so good. As of mid-June, vaccination rates are close to 50% in the United States and Europe, and over 60% in the United Kingdom. Japan is lagging, with just 15% of the population vaccinated, but should hit 50% by late August as the rollout accelerates. New, more contagious COVID-19 variants are spreading, but the good news is that the existing vaccines seem effective against these as well. This means the reopening should continue across the major developed economies through the second half of 2021. It also implies that the focus for markets has shifted to the strength of the growth rebound, the implications for inflation and the timing of central bank moves to taper asset purchases and eventually raise interest rates.

Click to read the article.
https://www.forbes.com/advisor/investing/july-2021-stock-market-outlook/


Volatility

Stock market volatility is a measure of how much the stock market’s overall value fluctuates up and down. The stock market was volatile in the early days of the COVID-19 pandemic. It was volatile again, to a lesser degree, ahead of the 2020 U.S. presidential election. And so far in the first half of 2021, we have experienced some wild bouts of volatility.
The stock market swinging down at least once a year is not surprising. J.P. Morgan Asset Management’s chart of S&P 500 intra-year declines, peaks and calendar year returns shows that, since 1980, the market has been down (at some point) every year for the past 40 years.

Volatility can provide opportunities for investors.

Click to read the article.
https://www.cnbc.com/2021/07/19/stock-market-volatility-can-be-a-good-thing-for-investors-heres-why.html

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Interest Rate Commentary 2021 Mar 31

What a roller-coaster ride for bond investors this past year, and the first quarter of 2021 delivered an unsettling bump! Graphs compare the yield on the US Generic Government 10 Year bond with the yield on the comparable 2 year bond over the past 5 years. The arrival of COVID-19 in early 2020 saw bond yields plunge as investors sought safe havens, with both yields touching historic lows, but the 10-year yield has now recovered by over 1% and GIC rates followed suit, with a 5-year term now offering 2%.

Click to view the commentary and graphs.