Inflation is slowing in Canada - Finally

We got the February inflation data. And everyone agreed and was happy that the inflation is slowing as expected. This is the first time since January 2022 the inflation data came down to 5.2%. The inflation was 5.9% in January 2023 and that was also lower than the analysts expected.

I am also happy but there are things that I am not so satisfied with.

Let me first talk about the couple of other data point that shows how the Canadian inflation is doing month over month and how it fares against the United States.

CPI and the Information Lag

Inflation is always measured in the Consumer Price Index (CPI). The indicator shows changes in prices as experienced by consumers. In Canada, Statistics Canada collects data, analyzes it and publishes every month. The data is not live and lags by a month. For example, it is already March, and we are getting numbers for February. The very nature of this index makes it somewhat outdated in the age of information technology where data travels faster than light.

CPI Baskets

The government includes a fixed group of products and services to measure the price changes over time. In Canada, CPI consists of Shelter (30%), transportation (17%), food (16%), Household items (15%), health and personal care, alcohol and tobacco and clothing and footwear baskets. The overall change in the prices of these products gives us the CPI number.

The analysis is robust, but it does not always truly represent what consumers are experiencing in the market. To be honest, they should update the baskets every year and make the food and shelter baskets the highest.

The annual inflation was 5.2% in February compared to 5.9% a month earlier. That’s a significant drop. Price growth slowed for the transportation basket at 3.1% but the food basket is still high at 9.7%. The shelter basket was at 6.1% which is lower than January but still on the higher side.

I am particularly angry about the food cost inflation.

How on earth does the government allow the price to rise that high? There are only five major companies that control the market in this country. Canada is one of the largest producers of Canola oil and that product price growth was significant. The authority should have monitored the price and should have prioritized the internal market. I think there is price gauging happening right in front of our eyes.

One of the biggest grocery chains denied the allegations that they raised food prices while inflations was sky high. They would obviously deny it but how come their profit rose by multiple fold if the cost was as high as they were reporting.

The Inflation Forecast

The analysts are predicting inflation to go as low as 2% by the end of 2023. I feel like that’s the timeline we expect the inflation to calm down unless something unthinkable happens that throws everything out of the room. Something like Ukraine war.

Comparision with the US

It looks like we are diverging from the US CPI data. Canada is lowering the numbers whereas the US market is still piping hot compared to ours. We peaked sooner and calmed down earlier. It shows that the BOC analysts were right in predicting that we do not require more rate hikes. But who knows what’s happening next.

What’s in it for me?

This is good news. This means the rate is not going higher in April. My mortgage payment won’t eat up my savings and I will have more money to invest. Some analysts are so optimistic that they are predicting the bank to lower the rate by the end of 2023. That could happen but I don’t want to raise my hopes higher. For now, I would be happy if my variable rate mortgage stays the same.

I think I agree with the analysts who are predicting this is the end of QT. The QT impacted the Canadian economy a lot because our household debt ratio is highest among the developed nations. Real estate is one of the biggest sources of revenue for the government. The rate increase will have a direct impact on the economies our banks are directly relying on.

I hope this is the end of the tightening cycle. I have had enough.

What do you think? What’s your prediction?

Posted Using LeoFinance ^Beta