A shallower recession could occur if high inflation is not entrenched, but only time will tell how the economy responds to the lively pace and magnitude of rate hikes, says Felix Narhi, portfolio manager at PenderFund Capital Management, in a market commentary. Despite what is being experienced at the grocery store check-out, the barbershop, and on the links, he says prices are falling elsewhere pointing the way to a moderation of inflation. In an immediate response to the war in Ukraine, prices for raw materials like crude oil and copper, as well as corn and soyabean, soared. But there are signs everywhere that the tide is finally turning as recent prices for lumber, hot rolled steel, copper, oil, and cotton are all showing price weakness. There are other signs that inflation may already have peaked. The U.S. Fed’s preferred measure of inflation ‒ the Core Personal Consumption Expenditures Index (PCE) ‒ was down to 4.7 per cent in May, still on the rise, but the third straight deceleration from the February peak. He says there are a number of reasons to be more optimistic. Inflation appears to be waning; record low consumer sentiment is a bullish signal; lower valuations imply higher future returns; and markets will recover ahead of the general economy.
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