Inflation Dominant Theme For Markets

Inflation, and its impact on consumers, businesses and interest rates has been the dominant feature of markets this year and this looks unlikely to change anytime soon, says RBC’s Harbour Group. It is therefore no surprise that a lot of effort is being put into figuring out if and when inflation has peaked as this has significant implications for the economy and markets. Simply put, if inflation has been the cause of much of the drama seen in markets this year, a reversing of the trend should be a positive all else equal. It says the only definitive way to know when inflation has peaked is by looking in the rear-view mirror and seeing year-over-year inflation figures in steady decline. However, markets are forward looking discounting mechanisms and have an innate ability to sniff out the slightest positive change in the outlook. “We expect this will be the case with inflation as well. By the time ‘inflation has peaked’ is on the front page of the newspaper, markets will in all likelihood have priced in an outlook that reflects lower interest rates and a better outlook for economic growth,” it says.