Peak inflation
A huge subject which clearly deserves a far more detailed post and attention than it's going to get on a Friday arvo (especially when I'm heading to Brisvegas for the weekend).
Supply disruptions tend to resolve themselves in time, and having previously soared, many commodity prices are now dropping (iron ore is down 20 per cent, wheat prices are well off the highs, crude oil is now almost in freefall, and so on), while shipping container and ocean freight rates are also now declining, albeit from sky-high levels.
Meanwhile rising interest and mortgage rates are also dampening demand in the U.S. economy.
Inflation hysteria is naturally running rampant in the media, but consumer price inflation is considered to be a lagging indicator, and markets are now looking ahead to the other side.
Indeed, 5-year inflation expectations have declined to just 2.7 per cent in the U.S., which is already lower than where expectations were in the Autumnal months of last year.
In Australia, a good deal of the consumer price inflation has yet to flow through to the official measures, particularly for household energy and power bills, and possibly for rents, which means that the headline rate of inflation won't peak until the last quarter of the year (and therefore won't be reported until early next year).
Your guess is as good as mine, really, but this suggests to me that the cash rate will be heading higher for the remainder of this year, ostensibly to combat the rising official inflation figures, but then flattening out thereafter as consumer sentiment and demand plunges.
In fact, it's implied that the US funds rate could be on its way back down next year, though a lot can change between now and then.
Have a great weekend!
