Canada: Evidence is building that headline inflation is close to peaking – RBC

Data released on Wednesday showed inflation in Canada rose to 8.1% (annual), the highest level in decades. Analysts at RBC Capital Market point out that inflation growth may be close to peak. They point out energy prices drove most of the increase from May, but food prices are also still rising.

Key Quotes: 

“About half the increase in the year-over-year CPI growth rate came from higher gasoline prices alone, but food prices continued to surge (up 8.8% year-over-year to match the increases in the prior two months).  There have been more signs recently that global inflation pressures may be near their peak.”

“The pullback in home resale prices in recent months is beginning to show up in lower home-buying costs – which were a major driver of price growth over the last year.”

“We continue to expect that headline inflation is close to its peak. But price growth is still too high, and won’t ease sustainably back to the Bank of Canada’s 1% to 3% target range until consumer demand slows substantially. We look for the BoC to hike the overnight rate to 3.25% by October and for that to push the economy into a moderate contraction next year.”