With Canadian prices rising to 7.7%, could inflation peak?

If there is anything we have learned over the past year it is that central banks are very bad at predicting inflation. Which may be cause for hope.

When Bank of Canada First Vice Governor Carolyn Rogers warned on Wednesday – on the same day that Canadian inflation data shocked almost everyone with a jump to levels not seen since 1983 – that there was worse inflation ahead, you may or may not be right. After failing to predict the current spike in inflation, the bank’s record speaks for itself.

One of the hottest days of the year yet, Rogers said as part of a fireplace chat organized by the Globe and Mail on One.

She said that was why the Bank of Canada raised interest rates “very aggressively”.

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With inflation rising to a level not seen since 1983, Canadians are looking for ways to earn more and spend less, while companies try to manage rising costs.

The end of inflation?

Rogers and the Bank of Canada are by no means alone in seeing a bleak future as prices continue to rise (“The transition team has disintegrated,” Rogers quipped.) But there are other voices, and it may be time to look for signs of a little optimism, if That’s just on the principle that it’s always darker before dawn.

Because unless you are convinced that inflation is permanently out of control and that the price of everything will keep rising forever, eventually inflation must be temporary at some point. The question is: when is this point?

People shop at the Walmart Supercentre in Toronto on March 13, 2020. Canadian price increases are at levels not seen in four decades, but as central banks pour in on higher prices and the economy begins to slow, there are some indications that inflation is losing its heat. (Carlos Osorio/Reuters)

British rail strike and new data show Canadians increasingly expect inflation to continue They are troubling indicators of what the future may hold. But just this week there were counter signs that some of the main drivers of inflation – food, oil and supply chain disruptions – may be starting to heal themselves.

Meanwhile, although retail sales haven’t yet seen a strong impact from the higher cost of borrowing imposed by the central bank’s rate hike, Canadian real estate has – something Rogers noted from the heat of its delusional side.

To look at the bleak perspective first, the strike that halted transport across Britain is a potential warning of the kinds of forces that could drive wages, and thus prices, higher.

The struggle for loss of purchasing power

“Our campaign will continue as long as it needs to run,” said Mick Lynch, Britain’s general secretary for rail, marine and transport workers, this week. With a three per cent managerial pay offer amid inflation over nine per cent, there are fears the transport strike could start a “new summer of discontent” as public sector unions, including the health sector, struggle to regain lost purchasing power.

So far, there is little evidence of this type of sabotage in Canada, and governments may decide to try to calm workers before it gets that far. For example, federally regulated dairy farmers were given a price increase in the middle of the year.

As Rogers reiterated on Wednesday, inflationary expectations, convincing workers and businesses that prices will continue to rise, is one of the things central banks fear most.

A recent report from the Conference Board of Canada provides some good news and bad news on this front. New June data shows that Canadian expectations for the next year have “risen”, but expectations for three years have fallen, showing that many Canadians may still be on a transition team.

While core inflation has risen again in the latest Statistics Canada data, there are still some key products whose higher prices are benchmarks for our inflationary concerns.

Prices at the pumps hit new highs when last month’s data was collected, but this month gas buyers know that although prices are still unpleasantly high, they have fallen significantly so far, which means other factors being equal, the inflation figure may be lower in next month.

Adjusting the statistical agency’s basket of goods to include prices for new and used cars as housing weight increases was expected to result in a one-time increase that could fade in future monthly data.

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Inflation is now 7.7% – the highest level since 1983

Inflation in Canada rose at the fastest pace in nearly 40 years in the year to May, according to Statistics Canada, as the price of just about everything continues to rise rapidly.

Slowing down not cheering

Some encouraging data on prices this week came from food commodity analysts at Agritel, who showed that global prices for cereals and oilseeds had begun to fall, although one reason for the decline, fear of recession, is not entirely cheerful. It shows that fast-paced price hikes are having an effect.

While prices are still relatively high, food producers around the world, including in Canada, are likely to plant fence post to take advantage of, helping drive prices lower if the weather cooperates.

Likewise, even as US President Joe Biden promised to cut taxes on gas, the price of oil began to fall. Although a reluctance By consumers to reduce driving in the US and Canada, business users continue to search for efficiencies as higher interest rates and a downturn in the economy threaten – even as oil producers look for new sources.

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Clarence Woodsma, author Shipping, land and local economic development An associate professor at the University of Waterloo, he notes that while fuel use by shippers rises faster than GDP when growth improves, the opposite can apply when the economy is declining.

“Sometimes trucking statistics are referred to as a type of canary in the coal mine,” Wadsameh said. “If we’re in a recession, companies will stop placing orders or adjust their inventory because they see what happens in the next quarter.”

This may be even more true in the wake of the recent supply chain difficulties faced by North American companies. The shortage encouraged companies to fill their warehouses when they could. They must now try to get rid of those excess stocks, inadvertently helping to untie the transport capacity needed by other inputs still in short supply.

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