The markets' reaction to the latest inflation figures is causing an upward pocket of pressure on interest rates. Influenced by gas prices, the latest inflation figures are coming in at 3.7% for the month of May. However, core inflation which strips out the more volatile prices of food and energy, was only up 1.8% in May from a 1.6% increase in April. This is still in line with the Bank of Canada's target rate of 2%. Additionally, the Canadian dollar gained in value with the latest inflation figures...a stronger dollar usually acts as a counter measure against inflation.

With so many mixed economic news, it is hard to really know what is happening in the world. One minute you hear a report that everything is tanking and the next minute you hear a report that house sales figures are not as bad as anticipated. The economists' predictions and opinions seem to change like our weather!! Anyone else experiencing winter conditions when it is supposed to be summer?? The financial state of the world seems to mirror our global weather patterns...and we are getting more than our fair share of financial hurricanes!!

From all this instability, one thing the market leaders do know, is that consumer confidence is fragile and key for any kind of recovery to be maintained. I wonder more and more these days, how much our economic news are manipulated in such a way to influence consumer thinking? Funny thing though, the truth is the truth and like cream, eventually rises to the surface. I think this is why we experience the rapid downward swings when fixed rates decide they are heading south. It's like there is a brief moment of truth until there are signs (however weak) that there is economic growth and then once again, the cycle repeats.

Is this an over reaction and manipulation by the markets or is there really enough guts in the world's economic recovery to warrant interest rate increases?

My vote is on the over reaction.

View article CBC News.

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