Living with inflation - get used to it

Living with inflation - get used to it

This week's commentary is very limited due to my arrival back in Australia at 11pm on Saturday, after a few weeks in Antarctica and Patagonia. I spent all of Sunday catching up on the charts, which have been updated in this edition.

It is important to recognise that inflation, and its implication for interest rates, will be a constant thematic for many more months, even years. Taking Australia as an example, there is no-one on the Reserve Bank board that has any relevant experience with an inflationary cycle like we are experiencing now. All of their knowledge comes from textbooks and university lecturers. The Reserve Bank has lost the initiative following its failure to pre-empt current events and we are now paying for its complacency. It has damaged its credibility amongst investors. It is now playing catchup and we are paying for its education.

The nexus between interest rates and bond (stock) prices is as universal as the laws of gravity. Interest rates rise so stock prices will correspondingly fall, though that nexus is less relevant to speculative shares as they do not pay dividends. Nevertheless, there is a knock-on effect that affects sentiment and the willingness to speculate. "Risk-off" is how some people like to paraphrase it.