Weekly Market Recap
A data driven week with all eyes on inflation data in UK and Canada. Inflation rates soared to a multi-year high fueling deflations fears and urging central banks to step in and tame inflation pressures. Meanwhile, the RBA’s meeting minutes delivered mixed signals on policy outlook.
UK Inflation Reaches 10-Year Highs
Annual inflation rate soared to 4.2% in the 12 months to October 2021, up from 3.1% in September, printing the highest rate since December of 2011 and exceeding market median forecasts of 3.9%. Core inflation, excluding food and energy prices, jumped to 3.4% from 2.9% in September.
On a monthly basis, CPI increased by 1.1% in October 2021, compared with o.3% previously.
Market participants are almost certain that the bank will raise interest rates during its next meeting in December.
The Bank of England held interest rates steady at its historic low of 0.1% and maintained its bond-buying programme at £875 billion. The central bank signaled it will raise interest rates in the coming months responding to high inflation.
RBA Meeting Minutes Downplays Rate Hike Expectations
The Reserve Bank of Australia discontinued the 0.1% yield target on April 2024 government bond during its November meeting. The board also dismissed its prior statement that rates were unlikely to rise until 2024. These actions reflected the bank’s shift to a hawkish stance, fueling expectations for a sooner rate hike.
However, the RBA’s meeting minutes released on Tuesday central forecast for the economy, which accorded with the cash rate remaining at its current level until 2024. Under the central scenario, GDP was forecast to grow by around 3% over 2021, 5.5% over 2022 and 2.5% over 2023.The bank expects the economy to bounce back in December and into March quarter as restrictions are eased further.
The central bank kept the cash rate on hold at a record low of 0.1% for the 12th month in a row, and maintained buying government bonds at its current weekly pace of A$4 billion until at least mid-February 2022.The RBA noted the decision to terminate the yield target reflects the economic improvement and the earlier-than-expected progress over the inflation target.
Governor Philip Lowe said in a speech that wage growth will have to reach 3% to sustain inflation around the middle of the central bank’s 2-3% target. “As we get closer to that goal, you could expect us to provide further guidance, including our projections for inflation.” Lowe added.
Canadian Inflation Hit Highest Level since 2003
The annual Consumer Price Index (CPI) jumped to 4.7% in October, up from a 4.4% in September. This was the largest gain in inflation since February 2003. Excluding energy, the CPI rose 3.3% year over year for the second consecutive month.
On a monthly basis, the CPI rose 0.7% in October, the largest gain since June 2020. On a seasonally adjusted monthly basis, the CPI rose 0.5%.
The largest contributor was transportation prices by a +10.1% rise, the highest increase since March 2003.
The Bank of Canada decided in its October meeting to end the quantitative easing programme given the progress made in the economic recovery. The bank kept its overnight rate at 0.25%, as widely expected, and expects it to remain at the current level until sometime in the middle quarters of 2022 when the 2% inflation target is anticipated to be sustainably achieved.
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