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Livin’ on the Hedge: Inflation and Your Finances

Research & Strategy November 19, 2021
Research & Strategy November 19, 2021

 

The inflation and interest rate landscapes are shifting dramatically, with persistent strength in the former and upside risk mounting for the latter. While much of the attention was on the blowout 6.2% y/y reading on U.S. headline inflation in October, possibly more telling was that core CPI inflation rose to 4.6%, the strongest since 1991. Canadian inflation also matched a 30-year high in the month. Mid- to short-term bond yields have also moved higher as central bank tightening looms large. The Federal Reserve has begun to taper asset purchases, setting up rate hikes in the second half of next year. The Bank of Canada has wound down its QE program with an eye on rate hikes around the middle of next year, if not sooner. We continue to believe that inflation will be more persistent than most initially thought, and that interest rate hikes could come sooner, unfold faster and possibly result in a level that is somewhat higher than most have assumed. For investors, it’s worth dusting off the old inflationary playbook and giving it a closer look.

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Robert Kavcic Director and Senior Economist
Sal Guatieri Director and Senior Economist

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