It is cavalier to assume we have seen peak inflation

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It is cavalier to assume we have seen peak inflation

Greek euro-coin one, Griechische Ein-Euro-Muenze

Investors and issuers should carefully consider whether they are placing too much weight on a single piece of US CPI data

Investors have pinned far too much on a single reading of the monthly US inflation report.

If the next reading lurches back the other way, there is a real risk that a market correction could hinder sentiment ahead of January's busy issuance window.

No doubt, the US Consumer Price Index has become the the key piece of economic data this year. Perhaps it was inevitable that when it finally came in lower than expected it put a rocket under the primary bond market.

But, at 7.7% year-on-year, its is still high and was only 20bp lower than the consensus — hardly the panacea world economies have been hoping for.

And, even if making the big assumption that inflation in the world’s largest economy has peaked, there are still no signs of it reaching the top in Europe or other parts of the world.

Inflation is not the only worry either. A hair-raising escalation in geopolitical tensions can reprice assets across markets with lightning speed. High energy prices and supply concerns remain largely unresolved in Europe. There are also worries that a recession is lingering around the corner.

There is also no guarantee that the next CPI reading will not edge up, for any reason, not least because a weaker dollar tends to add inflationary pressure.

Sentiment has turned decidedly festive since the CPI number. The Santa rally may have arrived early this year, but it can vanish just as fast.

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