In Canada, the consumer price index rose 5.7% in February from a year earlier, up from 5.1% in January, according to Statistics Canada. That was the highest inflation since August 1991. Inflation has been rising for Canadians for 11 consecutive months.

That said, our inflation rate is lagging behind that of the US, where it reached 7.9% in February.

The bond market will forecast future inflation rates. The market believes inflation will cool considerably, but will remain well above the central bank’s target of 1-3%.

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Market-based expectations for future inflation in the US have hit new highs in the past 10 days. Use of TIPS (Treasury Inflation Protected Securities) market data up to the 2003 start date:

Currently, TIPS charge 3.52% annual inflation for the next five years and 2.94% for the next 10 years. Before 2021, the peaks for expected inflation were back in March 2005, at 2.94% (5 years) and 2.76% (10 years). In November 2021, inflation expectations reached 3.17% (new 5-year record) and 2.76% (matching the 2005 10-year record).

Just as we will learn to live with COVID in the coming years, we may also be living with higher inflation.

Money flows to the world’s largest investor

I have long touted Berkshire Hathaway (BRK) (BRK.B) as a very useful defensive position. I would view the stock as a market correction hedge. It also gives you some exposure to value investments. The company and the stock usually perform very well in times of market stress, especially due to large stock market corrections.

As you probably know, Berkshire Hathaway is the conglomerate run by Warren Buffett, who is often referred to as the largest investor in the world. Berkshire Hathaway has grown its portfolio at 20% CAGR (Compound Annual Growth Rate) for the past 57 years. That’s one of the best investment track records of all time.

This post Understanding the markets this week: March 20

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