This morning, another gauge of April inflation in the US (this time the Producer Price Index) indicated that price increases are running hotter than expected. Yesterday, the Consumer Price Index indicated the same. Meanwhile in Canada, April PPI rose 14.2%, the largest increase since February 1980. The price increase for Canadian producers was broad-based with lumber leading the charge. While the massive increase in YoY prices in Canada had to do with the “base effect” associated with last April’s unusual circumstances, evidence is starting to pile up that inflation may be more than transitory. Stocks reacted to that view quite violently yesterday with the major indices all down by significant amounts. And after some volatility, the US dollar also moved up across the board (up 0.5%) in response to both the inflation fears and the stock market sell-off. USD to CAD is flattish this morning but is likely poised for some more volatility during the day as the market continues to absorb the possibly changing macro circumstances.
