Inflation and interest rates rise – but there are signs inflation may have peaked
Central banks, like the Reserve Bank of Australia (RBA) and the US Federal Reserve, have continued to lift interest rates over the last quarter as they try to slow down spending and keep inflation in check. The good news is that there are some signs that inflation could have peaked, as evidenced by the RBA decision to pause rates at 3.6% in April after ten consecutive rises. We do expect that goods price inflation will start to pause as domestic demand slows and this will result in a slowing in retail sales as well.
In good news for job seekers, the labour market remains very tight, or in other words, unemployment is at a near 50-year low and underemployment (people who are employed but would like to work more) is also very low. We have seen some wages growth as a result.
In the US, inflation cooled in March – and markets appear to be vacillating between fears of an economic slowdown, or ‘hard landing’ as economists term it, and the optimistic hope of a soft landing or no landing at all. Data indicated that consumer spending has stabilised, and some analysts see this as evidence that the US Federal Reserve will stop hiking. We can only wait and see.
Following the abandonment of it’s Covid-zero policy, economic growth picked up strongly in China, which is good news for the global growth outlook.
Markets have settled down after banking system issues
The collapse of the Silicon Valley Bank in the US, followed by problems at Credit Suisse, impacted the markets in February as investors worried that problems in the sector could be more widespread. However, regulators and governments stepped in quickly to reassure depositors and to ringfence the issue. This helped avert fears that more cracks would appear, and markets settled down again.
Taking a long-term view is key
Looking forward, we expect that some challenges will remain, but there are positive signs the themes that have negatively impacted markets, in particular inflation, rising rates and a possible slowdown in global economic growth, could be improving.
We remain focused on the long-term while recognising that a changing environment in the short-term can present opportunities, and we’re well-positioned to take advantage of these when they arise.