Stephen Lingard, SVP, Co-Head of Multi-Asset, CIGAM Portfolio Management
Headline inflation has been the single biggest macro factor affecting financial markets over the past 18 months due to the resulting impact on global monetary policy. Central banks around the world have scurried to remove monetary accommodation by raising short-term policy rates at the fastest pace in decades. This has been done to avert a 1970sstyle boom in inflation, which saw short-term interest rates become unhinged as they soared from 5% to nearly 15% by 1980. Such a rise in interest rates today would have a devastating impact on asset prices, so the June CPI number was a breath of fresh air as US inflation continued its decline towards target, falling to 3.0% year-over-year from 9.1% a year ago. However, the latest number was widely expected to be a good number due to base effects. This means that significant monthly inflation increases from over a year ago would be dropped from the calculation.
Read the rest of Stephen’s comments by downloading this file: 2023 July Portfolio Construction