Inflation for August 2022 | General financial discussion | Discussion forum

I find that monthly data tell us little to nothing. Sure, gas prices dropped a lot and it impacted the overall number. In practice inflation has been very persistent over a long period of time. The question is last couple of months are just a blip and fuel price artifact or if the upward trend is changing.

Three parameters out there which tell a better story:

1. Salary survey. Employers plan to give average raises of 3.8%. That’s a lot more than in the past but not pointing to “hyperinflation” either.

2. Canada’s money supply (M1) is dropping and has been since March. Still much higher than in August 2021 but the trend is good.

3. Benefits. Federal “inflation offsetting” measures will work to increase inflation.

Overall, looks like we broke the upward trend but its going to be a very long time before we get anywhere near 2%.

I agree it is wishful thinking central bankers can engineer a conquering of inflation along with a soft landing. Unemployment will most likely have to go up considerably to break increasingly higher wage demands and that is not showing itself anywhere yet.

Exactly, MattS, due to competitive constraints the private sector will not lead the way into major wage inflation.

US raised rate to match Canada's yesterday ,and confirmed 2 more rate hikes by end of year @.5 with rate ending up @ 4.25 % .I suspect Canada will raise rate .75% and then.5% ending up @ 4.50% by end of year.Canada has traditionally had a .5% rate higher than the US to support the loonie .Will we see 2x.75 % and end up @ 4.75% ?

Per Mordko, it will highly depend on on real data as it comes in. However, I doubt we will see more than two 50bp hikes the remainder of this year in either country. These days, even one month is a long time in the future.

The US Fed commented yesterday that it sees a 'terminal rate' of 4.6% sometime in 2023 and doesn't see a return to 2% inflation until 2025. Those seem contradictory at first glance but it seems like an attempt for a soft landing with no formal recession. See https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20220921.htm for the data points associated with these projections.

Then again, the views of the governors are only as good as their crystal ball which has been pretty cloudy.

savemoresaveoften said
As of now, a terminal rate of 4.5-5% is what central banks are "willing" to take it up to. That is the level deemed high enuf to suffocate inflation, and still give the economy a breathing space.
What the Fed confirmed with 100% certainty is that "dont expect rates to come down quickly" even if inflation looks under control, unless there is another covid like global shock that force their hands.
As to BoC being 50-100bps higher than Fed, it is just a historic rate plot. It does not have to be. Higher rates do NOT support FX in the long run. If it does, there would not be any country that needed to devalue their currency ever.

Really then please explain why the british pound is in free fall and that the Bank of England is expected to raise rate in an emergency 1% to support the pound .
No different then Canadian rate being higher than US to support the dollar . We were .5 % higher than the US all thru covid. Right now we are at the same rate and our dollar has fallen to 74 cents. Having a low dollar is good for exports , however it makes imports more exensive and adds to Inflation and we import most goods

  

Look at the energy situation and overall economy in Britain, and the expected ballooning of their deficit, one should not be surprised why its in free fall. Most if not all countries prefer their currencies to be "relatively weak" as it supports their export businesses, bring in tourists, among other things. They just dont want to see their currencies in free fall, as that fuels inflation in the short run.

Right now, its a global risk off situation, fear of global recession which is already happening, just not officially confirmed by stats and economics dept around the word. What do investors do ? They dump all other currencies and own US treasuries and US$. No other currency is spared in the selloff including CAD dollar.

“Canadian economy” isn’t a person, so has no interests. Some Canadians benefit from a weak CAD. Others benefit from a strong CAD.

New British PM did a dumb thing. The currency was already weak due to major economic challenges in the real economy. Inflation was already extremely high. As was the deficit. She responded by slashing taxes. This is only marginally better than Erdogan’s policy of slashing interest rates to subdue inflation.

Dollar now down to 72 cents expect a good rate hike Oct 26