When the markets’ sweet spot will end

This is the longest stretch of synchronized global growth since the financial crisis, with every OECD economy currently expanding.

Read: Canada’s growth tops G7 countries: IMF

“We are referring to this period as the sweet spot because economic growth is occurring at a period of benign or tepid inflationary pressures,” say Craig Basinger and Derek Benedet in a Richardson GMP market report.

For example, U.S. inflation is “stubbornly” low, missing six of the last seven months versus expectations, note the authors.

Though U.S. core CPI is stable at 1.7% year-over-year for five months and has thus stopped falling, “the absence of firming price pressures in keeping with Fed hopes/expectations is dovish,” says Derek Holt, vice-president and head of Scotiabank capital markets economics, in a CPI update.

The lack of inflationary pressure “should temper the Fed from hitting the gas pedal too hard and is another positive for equity markets,” says the Richardson GMP report.

When central banks will move

But when will higher inflationary data — with subsequent central bank tightening — put an end to the fun?

“Shorter-term [inflation] metrics have been heading up,” says Michael Gregory, BMO deputy chief economist, in a weekly economics report. For example: “The three-month change [in core CPI] was 2.0% annualized in September, up from 1.9% in August and a very rare flat reading in May. Six-month growth was 1.5% annualized, up from 1.0% in August, a relatively large jump as March’s extremely rare outright decline washed out.”

Read: Higher growth, inflation forecast through 2024: report

Inflationary data are “likely in the pipeline, given improving growth, tighter labour markets and an economy that has less and less excess capacity,” says the Richardson GMP report. “We still have not seen many signs, but inflationary data does tend to lag, so best to expect it sometime in the coming quarters.”

Read: How to personalize inflation

In a weekly economics report, TD senior economist Fotios Raptis says, “We continue to anticipate that the Fed will raise rates this December, but the ongoing weakness in inflation makes us a little less certain about this call.”

In Canada this week, economic data include September CPI and August retail sales. Speaking generally of upcoming data, Holt says in a weekly economics report, “I expect conflicting signals that probably won’t materially move the needle on October risks but should still leave the door open on a December hike.”

Read the full reports from Richardson GMP, Scotiabank, BMO, and TD.