Markets confused: is inflation's rise long term?

<p>Kia ora,</p><p>Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news inflation is embedding itself worldwide now.</p><p>The US Fed's monthly <a href="https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20210714.pdf" target="_blank"><strong>Beige Book</strong></a> describes an economy that "strengthened further from late May to early July, displaying moderate to robust growth". However it only reported modest employment gains. But it does report "broad based" pricing pressures where "the majority [of firms] expected further increases in input costs and selling prices in the coming months." The only relief was a pull-back in sky-high lumber prices</p><p>That evidence of inflation continued in the data as well with <a href="https://www.bls.gov/news.release/ppi.nr0.htm" target="_blank"><strong>producer prices</strong></a> rising more than the high rise expected, now up +7.3% from a year ago at an accelerating pace.</p><p>They were up at an even faster pace in Canada, <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/210714/dq210714b-eng.htm?HPA=1" target="_blank"><strong>rising a startling +16%</strong></a> on the same basis in June - although there are signs this is tailing off there.</p><p>Overnight the Canadian central bank sort of copied the RBNZ with a similar policy shift - <a href="https://www.bankofcanada.ca/2021/07/fad-press-release-2021-07-14/" target="_blank"><strong>signaling</strong></a> a reduction in bond-buying, in preparation for normalising their policy interest rate. It also sees higher inflation ahead. However, the Canadians were not as gung-ho as the RBNZ.</p><p>China has <a href="http://www.stats.gov.cn/tjsj/sjjd/202107/t20210714_1819381.html" target="_blank"><strong>reported</strong></a> a record grain harvest this season, with increases in both cropped areas and yields - but this domestic milestone isn't enoug