Canada: Inflation to run faster in 2021 – CIBC

Data released on Wednesday showed the annual inflation rate in Canada climbed to 1%, the highest since February.  Analysts at CIBC, expect inflation to run faster in 2021, eclipsing the Bank of Canada 2% target, at least temporarily. 

Key Quotes: 

“So the acceleration in inflation to the fastest pace since the pandemic began was less meaningful. Moreover, with the average of the Bank of Canada’s three core measures remaining stable in November, the central bank has even fewer reasons to be fussed with the pickup just yet. Even next year, as the annual rate of headline price growth temporarily eclipses the 2% target, monetary policymakers will look through the strength, placing more weight on what will still be an elevated unemployment rate in their deliberations.”

“The stability of the Bank of Canada’s three core measures, which continued to run at a pace of 1.7%, seemingly shrugged off some of those questionable gains in airfares and travel tours. As the headline inflation rate accelerates further, these stripped-down metrics will become even more important for policymakers.”

“Inflation is expected to run faster in 2021, eclipsing the 2% target at least temporarily. That said, it will largely be the result of base effects and higher gasoline prices, both of which the Bank of Canada will look through. Central bankers will rely more on measures of the output gap to determine when to lift rates off of the floor, particularly if core measures of inflation don’t reveal the same type of acceleration as headline.”