You have never experienced inflation like this if you are over 40.
The Bank of Canada is expected to raise interest rates.
The photo was taken by the National Post.
Canada experienced its fastest inflation acceleration since January 1983 in May, all but ensuring an aggressive interest rate hike from the Bank of Canada.
The consumer price index shot up nearly a percentage point to 7.7 per cent in May from the previous month. Prices increased from April to May.
The gains could not have been made without the contributions of energy prices. If gas prices are not included, the headline number would be 6.1 per cent. Prices are increasing across the core baskets.
All the economists quoted below think the central bank will raise interest rates by 75 basis points next month. After two 50-basis-point hikes in April and June, the bank's benchmark rate is currently 1.5 percent. What economists are saying about the latest inflation print and where the Bank of Canada goes from here
Another month, yet another high-side surprise on inflation... we have a problem... It is important to note that many measures of core inflation are now at or near 5 per cent, so this is well beyond a one-off move that will quickly fade even if oil prices relent. The risks to that view are similar to the consensus on inflation.
With little respite from high gasoline prices on average in June, and with food prices likely to increase, headline inflation should easily surpass eight percent next month. Inflation is expected to moderate in late summer and into the fall as commodity prices start to trend lower. Headline inflation was running well above the Bank of Canada's April projections prior to today and so this release makes a 75 bp move at the next meeting a near certainty and suggests that the peak in interest rates could be higher than the 2.5% we had previously predicted.
The Bank of Canada needs to get a handle on prices soon. The housing market will feel the pinch of higher rates even more than it already has because the Bank of Canada will no longer be stimulative and out of touch with inflation. More measured steps will be taken to tighten policy this fall.
For the first time in Canadian history, a generation of Canadians is experiencing high inflation. If you aren't over 40, you have never experienced inflation like this, and we don't expect much of a reprieve going forward. It is expected that inflation will remain elevated through the years. Rent price increases are likely to continue along with rising mortgage interest costs. It will be balanced against the decline in house prices.
Inflation pressures are continuing to expand. Sixty five per cent of the basket was seeing price growth at a faster rate than the three per cent top range of the Bank of Canada's inflation target. It was less than half of what it was. There have been signs of easing supply chain constraints as ocean transport time narrows and container shipping costs go down. The world's central banks have been reining in monetary support to tame overheating consumer demand and ease inflation.
With inflation well above its target of two per cent and more persistent than originally thought, we think the Bank of Canada will continue to aggressively hike interest rates. The BoC is going to front-load the rate increase. The BoC is expected to increase its policy rate by 75 bp at the July meetings and 50 bp at the September and October meetings, ending the year at 3.25 percent.
The email is bbbharti@postmedia.
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