(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)

What happened last week?

• For many the most significant change affecting daily life was the drop in the price of crude oil.  It will help lower inflation and improve the perception of inflation through the gas pump.  The price of oil is below its 2022 start, and within pennies of its price from one year ago.

• However, the major domestic economic news was the action taken by the Bank of Canada on Wednesday morning.  The "overnight rate" was raised by 0.5% (50 basis points).  It was the seventh consecutive increase, dating back to early March.  During the last 9 months the rate has risen from its effective, lower boundary of 0.25% to 4.25%. 

  • During the announcement, Tiff Macklem, Governor of the Bank of Canada indicated that a pause in rate hikes was a possibility when he said, “But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy. In other words, we are moving from how much to raise interest rates to whether to raise interest rates.”  The widely held belief is that interest rates will reduce demand to match supply and reducing and eliminating rate hikes at the appropriate times will allow inflation to be mitigated without pushing the economy into a recession. (Source1, Source2, Source3)

• More inflation news emerged last week with the U.S. Producer Price Index (PPI) release.  The PPI measures inflation at the wholesale level.  Producer prices rose 0.3% in November and 7.4% for the 12 months ending in November.  In October, the 12-month PPI increase was 8.1%.  The PP began 2022 over 10% and had exceeded 11% for four months (March to June) before moving downward during late summer and autumn to its current level.  (Source)
• Inflation news will be in sharp focus again next week as U.S. consumer prices and a Federal Reserve monetary policy announcement are scheduled.

What’s ahead for this week?

• In Canada, no major economic announcements are scheduled.

• In the U.S., consumer inflation data will be released on Tuesday, and may provide an indication of the Federal Reserve’s monetary policy actions scheduled for this coming Wednesday. 

• Globally, on Thursday the European Central Bank will release their interest rate decision, and the Eurozone will publicly announce consumer inflation on Friday. 

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