The S&P/ASX 200 Accumulation Index returned 5.75% in July. The share market increase was driven by a decline in both domestic and global bond yields and a better than expected (feared) US quarterly reporting season. The Australian 10-year bond yield decreased by 50 basis points whilst in the US, the 10-year bond yield decreased 30 basis points as markets realised growth was cooling quickly. Wheat futures have fallen back to US750 per tonne having reached US1200 per tonne when Russia invaded the Ukraine.

The price of oil also eased suggesting that inflation globally may have peaked. Indeed, the US inflation data for July was better than expected, recording an increase of just 0.1%. It is possible however that lingering supply-side and pandemic-related effects keep the rate of change in consumer prices stubbornly high. The speed at which headline inflation will come down is uncertain. Shelter inflation will be an extremely important driver of how low US core inflation ultimately falls. The rapid shift in mortgage rates implies that shelter inflation will eventually slow in response to lower house prices, but this process is only just beginning and will take some time to feed into actual inflation measures.