Morning Market Brief: Wednesday, July 5, 2023

Inflation on a downward trajectory?

The Organization for Economic Cooperation and Development (OECD) says inflation among its members was tracking downward in May. But with inflation still elevated and global economic activity still expanding, major central banks will likely stay on the path of raising interest rates, albeit at a slower pace.?

• The OECD reported that the inflation rate among its members moderated to 6.5% year-over-year in May from 7.4% in April. May’s rate marks the slowest pace of inflation among the group since December 2021.
• May’s decline in the OECD’s inflation rate was driven by a 5.1% decline in energy prices, compared to a 0.7% increase in April. Food prices slowed again to 11.0% in May, from 12.1% in the previous month. The drop in energy prices and a slowdown in food prices provided some relief for OECD households.
• The core inflation rate, which excludes more volatile food and energy prices, slowed to 6.9% in May. The drop comes amid a slowdown in services-related costs. The high core rate suggests inflationary pressures are broad-based, not just in energy and food prices.
• OECD also reported softening inflation in the G7 over May. The rate eased to 4.6% in May, its lowest since September 2021. Among G7 nations, the U.K. carried the highest inflation rate in May, while Japan had the lowest rate. Canada’s inflation rate was 3.4% in May.

Despite easing in May, inflation remains broad-based and elevated, negatively impacting many households worldwide. In response, central banks may keep tightening policy to bring inflation down to their targets. It is critical to ensure your portfolio is positioned to succeed in an environment of elevated inflation. As such, it may be beneficial to have exposure to investments that potentially hedge against inflation, such as real estate, inflation-protected bonds and preferred shares.

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