Expect sharp disinflation in the coming months: Charles St-Arnaud
Canadian inflation is cooling as a result of heightened interest rate hikes from the Bank of Canada, and one economist foresees price increases to slow even further in the months ahead.
In February, the consumer price index climbed 5.2 per cent higher compared to the year prior, but this marked the fastest deceleration in Canadian inflation since April 2020. This slowdown is an encouraging piece of data, according to a former Bank of Canada economist, who views the deceleration as a positive sign that the high cost of living could continue to ease.
“We’ll see sharp price deceleration in the coming months,” Charles St-Arnaud, chief economist with Alberta Central, said in an interview on Tuesday.
For now, however, Canadians are still grappling with elevated prices, particularly in food costs. Prices rose 10.6 per cent in grocery stores in February, marking the tenth consecutive month of a double-digit rise, Statistics Canada revealed.
One encouraging sign that St-Arnaurd points to is the cool down in what he calls momentum in price changes. In his own research, he’s seen price momentum rise on average by three per cent. This move is much closer to the BoC’s two per cent inflation target rate, which he is taking as a sign that the cost of living could soon be brought under control.
As for a possible twist in the narrative – which would mean interest rate cuts – St-Arnaud is not as convinced.
“It will be hard for the Bank of Canada to come in and signal that they are willing to lower interest rates,” he added.
Overall, the Canadian economy has proven to be very resilient, especially in the labour market, he added.
“Unless there are clear signs of either a banking crisis, or that we’re falling into a period of very weak growth, (and) at this point everything seems to be contained, it doesn’t look to be part of the general outlook,” St-Arnaud said.
Yet another reason the BoC may be reluctant to hold rates has to do with its counterpart south of the border, one strategist says.
“If they cut rates, the difference between the rates between Canada and the U.S. widens out, which pushes the Canadian dollar lower, and that’s actually inflationary,” Philip Petursson, chief investment strategist at IG Wealth Management, said in an interview on Tuesday.
He noted that the BoC should look at today’s data as a sign that they’ve done their job in taming inflation and it should confirm that cuts are not necessary at this time.
“If they wanted to create inflation, cut rates. If they wanted to keep inflation at the pace that it is, just maintain where you are,” he said.