Global markets have experienced a rather unusual sense of tranquility in recent weeks, which stands in contrast with much of the rest of the year. The driver may be signs that inflation has peaked.

 

The Canadian Consumer Price Index for the month of July was released over the past week. It came in at 7.6% on a year over year basis, below the 8.1% level seen in June. Meanwhile, the U.S. CPI reading for July was released a few weeks ago and it showed a similar decline, moving from 9.1% to 8.5%. This marks a subtle but important shift that may continue.

 

Part of the optimistic tone that has emerged over the past month stems from an expectation that central banks, like the Bank of Canada and the U.S. Federal Reserve, will be able to moderate the pace at which they have been raising interest rates in the not too distant future. While both are expected to raise rates meaningfully once again in September, there is a growing view that any increases beyond that will be tame in comparison.

 

It appears that we are in the process of transitioning from a period of high and accelerating inflation to a backdrop where pricing pressures are elevated but decelerating. Historically, the latter environment has proven to be a great backdrop for investors. That has me feeling comfortable with respect to the near-term outlook.

 

Enjoy your weekend.

Tim