Data-driven insights and analysis from our investment team every week.
As we move into December, it is natural to reflect on the “bigger picture” themes shaping markets for the coming year and beyond. Few issues loom larger than inflation.
The chart below provides a 47-year perspective on the US Trimmed Mean Personal Consumer Expenditure (PCE) Inflation Rate, a metric favoured by the US Federal Reserve for its ability to strip out volatile components and adjust for changing spending patterns. It’s an effective tool for cutting through noise and revealing underlying inflationary pressures.
Inflation during 2021-2022 surged to its highest level since the early 1980s, driven by economic disruptions and prolonged supply-chain challenges stemming from the pandemic and from the Ukraine war. While the decline since then has been notable, it leaves unanswered the key macroeconomic question: are we witnessing a return to the subdued inflationary environment of the 2010s, or have we entered a structurally higher inflationary regime?
Policymakers and market participants, having failed to foresee the last significant rise in inflation, remain cautious about declaring its definitive end. As we navigate the road ahead, careful monitoring of potential policy developments — such as trade tariffs or challenges to the US Federal Reserve’s independence — will be essential to ensure inflation expectations remain anchored and do not cross critical self-fulfilling tipping points.
