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Inflation rising in Canada to more than 3% in February?

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Forecasters agree on a price increase of 3.1% compared to February 2023.

The Canadian Press

Economists expect that inflation resumed in February in Canada in a context of rising gasoline prices.

Statistics Canada is expected to release its Consumer Price Index (CPI) data for February on Tuesday. Forecasters agree that prices will rise 3.1% from February 2023, reversing some progress made in January, when the annual inflation rate slowed to 2.9%. /p>

According to Royce Mendes, general manager and head of macroeconomic strategy at Desjardins Group, we should expect another acceleration in the growth rate of the economy. inflation due to rising energy prices during the month.

It appears that in the coming months, inflation will likely rebound to around 3%.

A quote from Royce Mendes, Managing Director and Head of Macroeconomic Strategy, Desjardins Group

An increase in inflation will slightly complicate the strategy of the Bank of Canada, which should begin to reduce its key interest rate in the coming months.

Royce Mendes says the main focus on Tuesday will be on underlying price pressures, which help economists gauge the direction inflation is heading.

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During the Bank of Canada's decision on interest rates earlier this month, Gov. Tiff Macklem noted that nearly half of the CPI's components were rising at a rate greater than 3%. In times of more normal inflation, only about a quarter of these components grow as quickly.

At the same time, Governor Macklem stressed that the central bank did not want to cut interest rates prematurely and would therefore wait until there was clearer evidence that the #inflation was soon heading towards the bank's 2% target.

The Bank of Canada has held its key interest rate at 5% since July, awaiting further evidence that inflation is approaching 2%, and its latest projection suggested inflation would reach that objective in 2025, a forecast shared by many economists.

One ​​of them, Douglas Porter of BMO Financial Group, says A source of uncertainty in these forecasts comes from energy prices, which generally have a large effect on overall inflation.

Oil prices can move very quickly and make many inflation forecasts appear random.

A quote from Douglas Porter, Economist, BMO Financial Group

Tuesday's inflation reading from Statistics Canada will be its last before the Bank of Canada's interest rate announcement in April, which Douglas Porter called a crucial decision. Although the central bank is not expected to change its key rate next month, many forecasters predict it will do so at the next policy meeting in June.

I think if the bank wants to cut interest rates in June, it will have to send a pretty strong signal at the April meeting, according to economist Porter.

However, the chief economist said the central bank cannot guarantee anything because a lot can happen in two months. Additionally, the Government of Canada is expected to present its budget a week after the rate decision in April, which could change the inflation outlook.

There will be two more months of economic data for the Bank of Canada to evaluate before its June decision.

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