I follow Canadian inflation data and predictions around that. It is important as the data impacts me directly and may help me navigate the financial decisions I make on a day to day to basis.

The Consumer Price Index (CPI) rose 4.4% year over year in April, following a 4.3% increase in March.

This has to be the first time the inflation rose since June 2022. The QT that the Bank of Canada has implemented for almost a year slowed down the economy. The inflation dropped from high of approx 8% to 4.3% in March.

The increase of 0.1% is significant but there are many reasons contributing to the rising inflation. One of the reasons is the increase in Mortgage interest payments due to higher interest rates. What at irony. Statistics Canada noted that higher rent also contributed to year over year increase in inflation.

https://www150.statcan.gc.ca/n1/daily-quotidien/230516/dq230516a-eng.htm

There is no point in looking at more granular inflation data as it has been oscillating due to the same global macro political reason i.e., Ukraine war. The gasoline price is still high and that in turn is making everything else pricey as supply chain relies on transportation and that relies on fuel. There is no clear linkage on how war is fuelling inflation everywhere in the world.

What's the next move for Bank of Canada?

The analysts and the general public are once again saying that BoC may increase interest rate again as the inflation was way above the targeted 4.1% range.

Almost everyone was expecting the inflation data to go down as it has been doing for the last year and a half. It is not about how much inflation rose but it is about which direction it took.

The inflation is sticky as BoC noted many times in their press event last month. Analysts were always focusing on headline inflation but noone paid attention to what is happening with each line item. The decrease in inflation is because the inflation was much higher last year.

I am expecting BoC to hold interest rate hike in June once again. They still need more data to back the rate increase decision as the economy is slowing down no matter what their official data is saying. We all know that inflation is sticky but the bank needs to make sure that there is enough concrete evidence to suggest the policy rate hike is the answer to the economic situation we have in the country.

We already see long line ups in food banks and recruitment centers. People are looking for job and they cannot find permanent full time jobs. The official job number relies on the total job number and does not highlight how the shift is happening from full time jobs to part time and seasonal jobs.

Look at the numbers.

• Employment rose by 41K (+0.2%) in April 2023, all in part-time work.
• 18.1% of those employed were working part time
• Of those who worked part-time, 15.2% did so involuntarily, meaning they would have preferred a full-time position.

Some analysts are pointing to Housing activity and are saying we need to increase the rate by 25 basis points to curb that and get rid of sticky inflation.

I do not think that's a right approach as the reasons causing inflation for this cycle are very different and are macro in nature.

Is hiking interest rate is the ultimate solution to the inflation problem we have in hand? I am not so sure it is.

The Bank of Canada will at least wait to see what the numbers are for May 2023 to decide the rates in July.

If you want to follow along the journey, here are my previous articles on inflation and interest rates

https://leofinance.io/posts/rmsadkri/inflation-in-canada-is-definitely-slowing-3-by-mid-2023

https://leofinance.io/posts/rmsadkri/end-of-the-rate-hiking-cycle-for-canada-hawkish-but-easing

https://leofinance.io/posts/rmsadkri/inflation-is-not-going-down-without-a-fight

https://leofinance.io/posts/rmsadkri/inflation-is-slowing-in-canada-finally

https://leofinance.io/posts/rmsadkri/no-rate-hikes-bank-of-canada

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