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Discussion Starter · #1 ·
April's consumer price index came in at 6.8%.

Scotiabank is forecasting 7.8% for May (the figure is due on Wednesday).

What's your best guess? I'm going with 7.6%.

From Reuters:

What central banks dread is a situation in which price increases become self-fulfilling - expectations for higher prices cause people to raise wage demands and accelerate purchases, driving further price increases.

The Bank of Canada is fighting a "battle" to control inflation expectation, said Derek Holt, head of capital markets economics at Scotiabank, who projects a 7.8% rate of growth for May CPI.
"They missed their chance to nip it in the bud and now you've got consumers and businesses who aren't fussing over what's driving it. They are engaged in extrapolative behavior, which is the path central banks always want to avoid."

As in other countries, much of the reason for soaring prices comes from supply constraints related to the COVID-19 pandemic and the war in Ukraine. But as inflation lingers, expectations that price pressures will continue have climbed.

 

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I agree that they should have been hiking rates much sooner. House sales were down 39% in TO in May yoy but prices up 10%. Shelter is the biggest part of the basket - 27%. Transportation is 19% and will likely be way up though . I think oil was peaking at $120 bbl. Same for food ~ 16%.

I think we should see something given the huge drop in housing sales. I think you are right , maybe a .2-.5% drop.

We will definitely see something in June when they ram rates up another .5%. The sooner the better then the market will bounce off the floor finally.
 

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Discussion Starter · #9 ·
Agree? Disagree?

(Bloomberg) -- One of Canada’s largest commercial banks fired a broadside at Prime Minister Justin Trudeau’s government, warning that high levels of federal spending are hurting the fight against inflation.

Economists at Bank of Nova Scotia, in a report to investors published Sunday evening, said that aggressive interest rate increases launched by Bank of Canada Governor Tiff Macklem will unduly punish businesses, given still-elevated levels of fiscal stimulus.

“The output losses that the BoC must engineer to rein in inflation are falling disproportionately on the private sector,” said the report by Scotiabank Chief Economist Jean-Francois Perrault and Rene Lalonde, the bank’s director of forecasting.

“In effect, high levels of fiscal spending will necessitate an unnecessarily large crowding out of private spending,” they said. “Less government consumption would lead to a lower path for the policy rate and take some of the burden of adjustment away from the private sector.”

 

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7.6. Either the Scotia economist or I will be correct or incorrect with our forecast. .2% difference is really a nothing burger in the current rate environment. However, if the rate that comes in is above expectation look out markets. More importantly, look out economy. Unfortunately, we know rate hikes take awhile to take effect and some don't believe in the current environment they will have the same effect as in a period with regular supply. In the meantime take solace that the decline in markets have taken a breather. Housing costs should help the June data considerably. Which again is an example of how inflation numbers affect everyone a little bit differently.
 

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Yeah this is pretty disastrous imho. We've been hiking rates for a few months, so you'd expect inflation to stabilize, not get much worse. I wonder if the BoC could go in full panic mode and hike even more than 0.75% in July?
 

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The BoC was definitely late to the game.

But I think there is some really good buying opportunity here. Oil is down to about $102 today. Still high, but a lot further away from where it was around 120.

Here in Ontario, regular gasoline is back under $2/L.
I filled up yesterday for $1.949.

At some point, this inflation is going to start to slow down. I think by the time summer ends, it will be coming down.

Some people think I'm nuts, but I have been adding quite a bit to interest rate sensitive equities and fixed income investments in anticipation of things getting under control. I think the market is pricing in the worst and thinking that inflation is out of control, but I think it will start to slow in a few months.
 

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Yeah this is pretty disastrous imho. We've been hiking rates for a few months, so you'd expect inflation to stabilize, not get much worse. I wonder if the BoC could go in full panic mode and hike even more than 0.75% in July?
And harm real estate?

What about the real estate investors and property developers? Canada's most-beloved and most-protected class.

I think that many at the Bank of Canada would rather see high inflation than dare to harm the housing market. The BoC has inflated home prices for 14 years. Would they do all that work, only to suddenly turn their backs on RE?
 
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