Understand the markets this week: September 20, 2021

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    New inflation data: sign?

    The week that ended September 17th delivered a very generous data dump in Canada, the US and Europe with updates on inflation data, economic data, real estate numbers and more.

    Portfolio managers, professional economists – and chair economists like yours really – dig their way through trying to understand everything.

    Canadian inflation

    Let’s start with inflation data here at home. Statistics Canada released its consumer price index for August 2021 on Wednesday. The annual inflation rate rose to 3.7% in July, marking the largest increase since May 2011. August said “Hold my beer” and recorded an annual inflation increase of 4.1 %, the highest since 2003.

    Now keep in mind that inflation or any statistic can appear more meaningful or worse because of base effects. Today’s inflation rate is based on a comparison with a year ago, when the pandemic and ongoing restrictions suppressed the numbers.

    However, the base effect argument might not lower the (rising price of) mustard all the way, given the historical CPI of trade economics. Click on that 5-year or 10-year tab to see graphs where the base effect argument seems to be disappearing. Also, many will argue that the inflation numbers are being “massaged” and that the rules are constantly changing. Let’s remove most of the expensive things from the CPI number.

    To get a feel for real inflation, you can start by shopping and filling up your car along the way. Also, keep in mind that depending on your personal lifestyle and spending patterns, inflation will hit you differently than your neighbor or best friend.

    From this CBC post …

    “Some of the biggest contributors to the jump have been the sectors that Bank of Montreal economist Doug Porter found were in full ‘reopening mode’ due to COVID-19 shutdowns, including air travel, where ticket prices dropped by 37 .5% skyrocketed and hotel charges rose 12%. The petrol prices have increased by 32% compared to the previous year. “

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