Signals suggest inflation is peaking

By Sam Boughedda

Berenberg analysts told investors in a note on Friday that signals suggest is peaking.

They explained that the firm analyzed the inflation rates in the 40 largest economies around the world, with the median inflation (CPI) rate currently 10%, the “highest level since 1982 on this basis and compares to 1.7% at the start of 2021.”

“The world is experiencing a sharp inflationary shock for a variety of reasons. More than 90% of the countries we track have an inflation uptrend, calculated as the 12-month change in inflation rates. This 90% level has been breached three times since the early 1960s: February 1974, March 1980 and July 2008. Global median inflation has peaked within 1-2 months of these previous 90% breaches. This is consistent with pricing signals – eg oil prices, shipping costs – which suggest that global inflation rates will fall sharply in 2023,” they wrote.

The analysts went on to add that despite the inflation data, it provides “mixed messages” for equity markets.

“In 1974, (US) equity markets fell by 27% in the months following the peak inflation signal. In 1980, US equity markets were 21% higher less than one year after the peak inflation signal was triggered, but equity markets fell by 36% in the months following the 2008 signal. In the two years following the initial peak inflation signal (90% breach), equity markets are 3% lower on average, with a range of +6% to -15%. While this has been a strong signal for peak inflation, this has not been a strong (or consistent) signal for investors to buy equities,” they added.

They concluded that there is “clear support” for inflation rates to peak and to roll sharply in 2023, while overall, Berenberg believes equity markets still have plenty of headwinds to process before focusing on the post-recession recovery ahead.