By Alec Hogg
The image below from our partners at the Financial Times in London tells the story. Yesterday, the US released its consumer price index for June which was just 3% above that of a year ago. This means its official inflation rate is rapidly approaching the US Federal Reserve’s target of 2%.
That’s important to us for two big reasons. First, ratcheting up of US interest rates was a direct response to higher inflation. With the monster under control, there is now no need for further rate increases. What happens in the world’s largest economy impacts all others, including SA. So the worst of the rate cycle is behind us.
Second, there’s a predictable knock on effect. Lower inflation means lower interest rates which means improved economic activity and better company profits. That translates into higher share prices. Those fretting about “a second shoe dropping” and other dire predictions on stocks are likely to be proven wrong.
As we think, so we are. Sometimes we sapiens add unnecessary complexity to our lives. Staying in the broad streams makes things a lot easier. Interest rates have peaked, which has always been a signal for higher equity prices. Don’t try to second guess the trend. Believe it.
Sterkte.
Alec
*We’ve been at our Cape Town studio at the Latitude Aparthotel in Sea Point these past two days. Having some really good face-to-face interviews. Today my colleague Chris Steyn eyeballs Ian Cameron, one of the noblest human beings you’ll ever meet. Ian will be celebrating BizNews@10 with us in Hermanus on Friday, August 4. Of the 180 tickets available, less than 50 tickets are still available. If you’re keen to join us, please secure your spot soonest – here’s the link: https://qkt.io/zLaR1L Â
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