Inflation in Canada Is Set to Reach a 40-Year High

Inflation in Canada is hovering around a 40-year high, according to a poll by Bloomberg

The country’s CPI (Consumer Price Index) is expected to rise by 7.3% in May from the Statistics Canada data, which will be released this week. With this, Canada will record the strongest yearly rate of inflation increase since 1983. This guarantees almost a 75bps rate rise at the Bank of Canada’s next meeting.
According to methodological modifications revealed last week, the Statistics Canada data will include prices of used automobiles for the first time. It will also give fuel a higher weight in the basket of goods and services. The report released in April showed the annual price increase reached 6.8%, a 30-year high.

Bank of Canada Warns of Potential Increase in Inflation

The Bank of Canada (BOC) has warned of the potential increase in inflation in the future, and officials have routinely updated their estimates upward in the last year. The BOC expects the inflation pressure to be sustained and has indicated that the interest rate of its monetary policy will almost also increase to around a 2-3% neutral range. After three consecutive raises, the interest rate has currently risen to 1.5%, from about a 0.25% low during the 2020 pandemic period.

Markets have almost entirely priced in a three-quarter point increase at the July 13 decision. Many analysts predict that the BOC will imitate the Federal Reserve to raise borrowing prices dramatically.
Even though six of Canada’s top commercial banks have responded to the Bloomberg inflation poll, the results are not yet definitive. At least 15 economists submitted their forecasts by the end of last week. More responses, when compiled together, might cause a change in the median estimate.

If the inflation rate in Canada keeps skyrocketing as predicted, the Canadian dollar might begin to dip in response.

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