Canada: Economic weaknesses do not always coincide with disinflation – NFB

The Canadian Consumer Price Index (CPI) rose in January 0.9% above the 0.6% of market consensus, showed data released on Wednesday. Analysts at the National Bank of Canada point out that annual inflation continues to rise with widespread price increases despite the slowdown in economic activity in January. 

Key Quotes:

“The January 2022 release of inflation in Canada proves that economic weaknesses do not always coincide with disinflation, as despite the economy stumbling due to sanitary measures in January, prices rose sharply during the month.”

“Geopolitical tensions pushed up oil prices and consequently gasoline prices (+4.8%), while food prices were up 1.4%, a pace not seen since 2016. This pushed annual inflation to its highest level since the early 1990s.”

“The CPI excluding food and energy also rose noticeably during the month (+0.4%), recording its largest increase in four months. On an annual basis, all eight major categories exceeded the central bank's target range of 1% to 3%, the second occurrence since seasonally adjusted data began being compiled (1992).”

“This generalized nature of inflationary pressures is what has led us to say for some time that the economy no longer needs a policy rate at the effective lower bound, especially given the lag in the transmission of monetary policy. We expect inflation to moderate somewhat over the next 12 months, but to remain around 3% (the central bank's upper range) given the current supply chain disruptions and labor shortages.”