September 2021 Inflation | Page 2 | General financial discussion | Discussion forum

Loonie said
I'm not sure I follow you.
What I see is a steadily increasing divergence between target green line and red line.

That's expected as the price of the CPI basket will diverge between having 2% inflation and having 6% inflation.

Inflation is reflected in the slopes of the lines. Steeper line means higher inflation.

CPI prices were climbing along the steep red 6% per annum inflation line until July. After that, they climbed along the more-moderate 2.6% inflation brown line.

The green 2% line shows prices had they climbed 2% per annum from January 2020.

The red and blue squares are the CPI basket prices from Statistics Canada.

Norman1 said

I'm also having difficulty in both assessing and drawing conclusions from this.

So I go back to basics. In this month of October, while the price of gas at the pumps went up again, salad dressing went from 2 for $ 4- to 2 for $ 5-. That's up 25%! Cat food went from $ 0.60 to $ 0.70 per can. That's up 16.67%! Just two examples.

I see too much 'seeing what one wants to see' in the numbers. While it is true YOY inflation numbers are remaining persistently high and there may be indeed be higher inflation (than 2%) staying higher longer than one wants, don't shoot the messenger.

Norman1's graph is showing to some degree what central banks and some have been saying, i.e. the expectation that YOY inflation increases are now beginning to decelerate in magnitude. Others have been articulating similar information in other forums. YOY data is something one must be cognizant of but one does not need to become overly alarmed over, and call EMS just yet.

I will be a lot more interested in the next 3-4 months of YOY data and only if it remains persistently high into next Spring and is not rolling over, will there be real reason to tap on the brakes. The earliest I see interest rate changes is Spring of 2022 when it will be more apparent if some of the heat needs to be taken out.

Added: I do agree CPI is a lagging indicator and one cannot let the horse run loose too long but it is not clear the horse is running yet in full stride.

AltaRed said
I see too much 'seeing what one wants to see' in the numbers. While it is true YOY inflation numbers are remaining persistently high and there may be indeed be higher inflation (than 2%) staying higher longer than one wants, don't shoot the messenger.

Norman1's graph is showing to some degree what central banks and some have been saying, i.e. the expectation that YOY inflation increases are now beginning to decelerate in magnitude. Others have been articulating similar information in other forums. YOY data is something one must be cognizant of but one does not need to become overly alarmed over, and call EMS just yet.
…

I agree.

Stay fixated on the year-over-year numbers and be months behind what's actually happening.

With year-over-year CPI rate, one has already missed prices climbing around 6% per annum for months now. People spending on goods and services have not.

If the current tread holds for a few more months, one will also miss the moderating of inflation to 2.6%.

Just like using the hour-over-hour distance covered for a car. One will miss the dangerous driver who has been whizzing through the streets at 150 km/h for the past 10 minutes. After all, the hour-over-hour distance traveled indicates a speed of only 25 km/h as he was parked for the first 50 minutes of the hour.

24 months on the red 6% line is not needed for 6% year over year inflation. Only 12 months.

CPI for December 2020's on the red line. Should CPI December 2021 also end up on the red line, then the red 6% line will join the two data points and the calculated year-over-year inflation will be 6%.

Stay fixated on the year-over-year numbers and be months behind what's actually happening.

You are always months behind when you are looking at published CPI data. It tells us history. What’s happening today will impact CPI in the future, many months later.

Central Banks are supposed to act before inflation runs hot. They are supposed to be looking at the underlying data, money supply, cost of labour, etc rather than CPI. CPI, once published, tells us if they were right or wrong.

The major risk is that central banks after years of prudence are undermining their credibility. Once that happens, takes a long time to restore.

Internationally, UK might be raising interest rates very shortly.

Meanwhile Federal Reserve has been cowed by politicians and given ludicrous objectives to achieve world piece, equality and prevent climate change.

Canada is half way, as per usual.

Vatox said
The fact that the last two blue dots are on a lesser trajectory only shows price increases are slowing. 

This is a key statement. It's the unknown future path. The Bank of Canada has a lot to consider, not least of which is the potential economic impact of too soon BoC rate increases on homeowners and, crucially, the residential real estate market, which makes up a not insignificant portion of the entire Canadian economy and, by extension, of the inflationary pressures. In other words, one of the key drivers of the inflationary pressures is the soaring cost of housing. Increasing rates too quickly, even at all, in a real estate market whereby the federal government has already dramatically increased the qualification criteria for new buyers will cause the real estate market to seize up and come to a grinding halt. No one will want to sell. An already limited pool of buyers, namely to foreign investors, higher net worth investors, and speculators, will dry up. The entire group of players in the real estate industry, from realtors, property managers, lawyers, accountants, bankers, etc., will have no income, and have to file for employment insurance, in order to make end's meat. In short, an economic calamity.

Do I like that this is the economic reality that is Canada? No, obviously not, but this is the reality Canada created for itself with its focus on being an entirely services-based economy, hollowing its manufacturing base, and shifting its head offices to foreign countries with the sale of many of its largest firms to foreign buyers.

In short, it's complicated, and these are the sort of considerations the BoC has to take into account, GIC and HISA depositors being the absolute last consideration on the minds of BoC governors (if they're even on their minds at all)—and, frankly, this is the way it ought to be. If you're looking for a return on your money, it ought to carry with it some degree of risk. If, on the other hand, you're looking for a risk-free way to park your money, you ought to expect to lose money by way of a loss of purchasing power over the medium and long term.

Cheers,
Doug

Exactly, I look at it much the same, Doug, though I don't think the steady and growing stream of newcomers to Canada with money to spend nor foreign buyers will be deterred by higher interest rates so I don't see the economic calamity scenario. There's lots of money in the world and Canada's large cities are #1 on lots of folks' lists.

I do agree BoC is very eager, for political reasons if nothing else, to not upset all those urban voters with large mortgages, and also that savers don't even enter BoC's thoughts, and that that's as it should be.

whereby the federal government has already dramatically increased the qualification criteria for new buyers

I’ve seen pretty strong evidence that the increase was a) not “dramatic” and b) had no effect.

To top it off the government has promised to introduce massive incentives to buy houses for under 40s.

House prices are not in the CPI. They take a loooong time to indirectly show in CPI.

In short, it's complicated, and these are the sort of considerations the BoC has to take into account,

There is one meaningful objective for BoC rate: to keep inflation on target and preserve value of money. BoC is only responsible for the monetary policy. Everything else, be it “economy” or “housing market” are someone else’s problem.

The worry is that BoC is not on the ball and IS focusing on other things. The “transitory” claims are running hollow. Inflation has repeatedly overshot the target and predictions. If you remember we were originally told “it will only be high for a month or two, in contrast to price drops in March/April 2020”. We are in October. And salaries/energy costs are rising very fast. Shortages seem to be getting more widespread.

Sooner or later BoC will be forced to raise rates by Mr Market. And if its late the rates will have to go up higher than otherwise. And THAT will strangle the economy.