Inflation figures came in hot at 8.5%. It was above street expectations but not the double figures I was alluding to. Nonetheless, it was the highest figure since 1981 when Ronald Regan was the President. The monthly figures went up 1.2% from February to March and if you annualize that you get 15.3%. These sorts of monthly increases happened only four times in my professional career. That was in 2005, 1980, 1974 and 1973. All times were followed by higher inflation.
Since it did not rise by a big margin to White House fears, the media was quick to suggest that inflation has peaked. 50% of the rise in inflation was due to price hikes in energy prices.
The Fed is forced to walk a very fine line here as they are more concerned about inflation expectations than the actual inflation. If they lose control of that, people will start bringing forward their purchases, in anticipation of higher prices, creating a self-fulfilling upward spiral in prices.
After the release of the figures, bond prices started to rally and the equity markets caught a bid too. I wouldn’t read too much into this but will be watching what measures the administration will take to calm situations ahead of the midterm elections. There is nothing much the Biden administration can do other than ease pressures in the oil market through the strategic reserves. Chances are more that the Congress will move Republican.
The good news in the US is that wages are up 5.6% year over year. Not exactly keeping up with inflation. The dollar moving up is also helpful in containing inflation. None of this changes my view on the equity markets moving up in the coming months.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is a co-founder of a new hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.