Inflation surges

Canada Inflation Hits 4.4%, Deepening Central Bank Challenge – Bloomberg.

Eugene Van Den Berg, Oct 2021

As I have predicted earlier in 2021, inflation is going to be with us for some time. 

From the article:

“That’s the highest reading since February 2003, exceeding consensus expectations of 4.3%. Higher food, shelter, and transport prices were the main contributors. The hot inflation readings of the last six months are deepening a communications challenge for Governor Tiff Macklem, who maintains the spike in consumer-price gains will be short-lived. The data also comes as traders in the overnight swaps market bet increasingly against the Bank of Canada’s guidance that policymakers won’t raise interest rates until the second half of next year. Traders are pricing in at least three interest-rate hikes in Canada by the end of 2022, which would bring the policy rate to 1% from the current 0.25%.”

Raising rates from the current level of 0.25% to 1% in approx. one year from now will do very little to tame inflation.

Inflation patterns of the 1970s are evidently combined with the onset of a commodity supercycle I have been writing about regularly since earlier in 2021. A shortage of energy drives this commodity supercycle, demand for Renewable Energy (RE) core commodities to manufacture RE parts (industrial processes uses oil), and on top of that, deficit spending and high levels of debt.

Without productivity improvement, which in Canada has been weak for decades, the inflation spiral will subsist for a longer time. The risk for stagflation is also becoming more to the fore.