Down but still not out.

Investment Adviser, July, 2006

As widely expected, the US Federal Reserve made the decision to raise interest rates by another quarter point to 5 per cent at its May meeting, the sixteenth increase in two years. However, equity markets were spooked by the accompanying statement "some further policy firming may yet be needed", and since then disappointing consumer price index data has added to concern rates could be raised again this year.

Although there has been an increase in inflation, it is most likely cyclical in nature rather than a structural issue. Most of the pick up in inflation is a delayed result of the commodity price increases which took place over the last few years. Whilst one would expect commodity prices to remain at historically high levels given supply constraints, it is...

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