economic commentary

June 30, 2022 - Inflation Remains Key Driver

Inflation remains the key driver impacting global financial markets. It was expected that inflation had peaked and would show signs of receding throughout the balance of the year. The U.S. inflation rate did decline from 8.5% in March to 8.3% in April, however, the market was surprised when the inflation rate moved higher in May to 8.6%, the highest level since 1981. In addition to wanting to see evidence that inflation is receding, the Fed would also like to see expectations for future levels of inflation start coming down. In that regard, the Fed made reference to the University of Michigan Consumer Sentiment Index, which is normally a second tier economic report. Future levels of inflation as outlined in that report were much higher than expected and that report, in combination with the higher than expected CPI print for May, were the major factors behind the Fed taking a more aggressive stance and hiking interest rates by 75 b.p. its June meeting. Inflation in Canada also moved much higher than expected, surging to 7.7% in May, the highest level since 1983. European inflation levels are also continuing to surprise on the upside, with the Eurozone rate at 8.1%.

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