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Has the Inflation Peaked for Now ?

This week the inflations numbers were released throughout the world. And it was accompanied by various headlines mentioning how many years after such a high number got published. This led to a series of rate hikes by central banks and some of them such as the Bank of Korea hiking surprised investors.

But the question that should concern equity investors is whether any of this is sustainable without creating a financial crisis or a recession globally. Jamie Dimon of JP Morgan yesterday mentioned a chance is always there of a recession but the focus should be on inflation and bringing it down at any cost.

These are the words that would for sure alert the equity investors cause the bond markets are already factoring in a reversal of policy in early 2023. But the acceleration of inflation and the action to beat it would be so strong in the coming months that there is a higher probability of a recession sooner than estimated.

And the destruction of demand is going to hamper inflation sooner than later. For example, China is currently fighting covid most aggressively since it began in 2020. This has resulted in a large impact on the manufacturing sector's demand for various commodities. It has also resulted in the building up of inventories and lower new purchases. All in accumulation will impact near-term demand. It has also announced to the export of refined fuel products that it was banned till now.

Thus, factors like these are pointing towards lower business sentiment resulting in lower new orders and hence cool off in prices. But this will be short-lived as the global liquidity will be pumped again by end of this year resulting in higher inflation again in the medium term.


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