PrefBlog

Carney talked tough on inflation:

Given the scale of the fiscal challenge, it is perhaps not surprising that some eminent economists are looking for an “easier” way out. This form of denial is to allow temporarily higher inflation in order to inflate away public debt.

To the Bank, this is a siren call.

Those most in need of fiscal consolidation are often those with debt portfolios of the shortest duration. The “surprise” would have to be very sudden and very large to have a material impact. Of course, if temporary inflation becomes built into expectations, real rates may well increase, rather than fall, thereby exacerbating debt dynamics. Moreover, in the past, it has proven devilishly hard to keep inflation high temporarily. Would it be credible to have a one-off increase in the inflation target?

Central banks have worked for decades to get inflation down to levels consistent with price stability. We should not risk these hard-won gains.

A reasonable day in the Canadian preferred share market with PerpetualDiscounts gaining 8bp and FixedResets losing 22bp. The question is rapidly becoming one of not so much ‘How long will the PD streak last?’ but ‘Can PD’s manage to make it through the entire calendar month without a down-day?’ Volume was moderate and volatility virtually non-existent.

This entry was posted on Friday, June 18th, 2010 at 7:10 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.