November 15, 2021

There’s an eerie calm in markets despite disturbing numbers

Indeed, the markets’ reaction – the S&P500 and Nasdaq indices both rose on Friday and 10-year bond yields edged down and remained around their lowest level since early March and, at 1.45 per cent, 30 basis points below their recent peak of 1.74 per cent on 31 March – was to simply ignore the data, which showed a continuation of the accelerating surge in inflation experienced in the past few months.

In April the headline number was 4.2 per cent and the core inflation number was three per cent.

It is true that there were “base effects” in the data – sectors of the economy most affected by the pandemic last year, like travel, entertainment and used cars are rebounding as the economy’s re-opening gathers pace – and there are also supply-chain bottlenecks that are pushing up prices.

If the inflation rate doesn’t start to ebb as this year progresses the prospect of the Fed…

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