Canada: Inflation should accelerate as soon as next month – NFB

February’s inflation numbers came in below expectations. The CPI rose 0.5% (consensus: 0.7%) monthly and the annual rate reached 1.1%, the highest in a year. According to National Bank of Canada’s analyst Kyle Dahms inflation should accelerate due to a positive base effect. 

Key Quotes:

“February’s CPI report came in weaker than expected. While tepid, annual headline inflation is running at its fastest clip in the last year thanks to the strong rebound in gasoline prices over the past few months.” 

“Core inflation measures (which you may recall were reverted last month after an adjustment caused a sizeable downward revision of 5 ticks) stayed the course during the month. The average of the three core measures preferred by the Bank of Canada remained at 1.7%.”

“In our view, inflation should accelerate as soon as next month due to a positive base effect (recall how gasoline prices had declined substantially in March of last year). That’s not all, generous government aid programs which should stay in place until vaccination can usher in a return to normal will continue to create artificial labour shortages. Commodity prices, including food (a heavyweight in the basket), have also risen strongly which could also affect the purchasing power of Canadian consumers in the months ahead.”

“Supply chain disruptions which currently are pushing inflation upwards could last for some time, offsetting other downward pressures. In that context we see headline inflation running around 2.6% in Q4 2021.”