Weekly Market Recap
Stagflation vs Greenflation
Week in review
- RBA keeps rates on hold and taper of bond purchase in place.
- Australia trade surplus increases to all time record of $A15.1bn
- RBNZ raises official cash rate by 0.25% to 0.5%
- Australia business and consumer confidence
- Australia labour market report
- U.S. CPI inflation
Thought of the week
According to Google Trends, searches for the term “Stagflation” are the highest since the middle of 2008. “Greenflation” will soon too perhaps given the shifting policy mix that is creating demand for non-fossil fuels. Stagflation is something to be monitored given inflation surprise is near record highs and economic surprise back to a very low level (see chart). However, its difficult to see stagflation taking hold when there are reasons for both growth to increase and inflation to fall in the coming quarters. The upside to the growth outlook comes from higher levels of capital spending by businesses, spending power of consumers and higher rates of productivity. Meanwhile, disruptions to supply chains and imbalances in energy markets should slowly start to rectify themselves, particularly as COVID-19 impact on the global economy fades. While rates of inflation will start to fall back, its likely that they will remain higher than the very low rates of inflation experiences during the 2010s.
Inflation surprising to the up, growth to the down
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