Inflation in Canada rose above expectation in January. According to National Bank of Canada analysts Matthieu Arseneau and Kyle Dahms, inflation should accelerate in the coming months if restrictions due to the coronavirus can be relaxed.
Key Quotes:
“Far from being hot, annual headline inflation is nonetheless running at its fastest clip in 11 months thanks to the strong rebound in gasoline prices over the past few months. Moreover, core inflation also showed some strength during the month.”
“In our view, inflation should accelerate in the coming months if sanitary measures can be relaxed. We continue to expect sticky inflation despite the economy running below capacity and a high unemployment rate. In the last Business Outlook Survey conducted by the central bank, 57% of corporations considered that an unexpected increase in demand would be difficult to meet, a proportion consistent with an absence of slack.”
“Generous government aid programs are creating artificial labour shortages and they are expected to last until vaccines will allow a progressive return to normality. Commodity prices, including food (a heavyweight in the basket), have also risen strongly which should affect the purchasing power of Canadian consumers in the months ahead. Supply chain disruptions could last for some time helping core inflation to persist close to the BoC mid-point target over the next 12 months.”
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