Although Canada’s inflation has cooled slightly, a recession is still unavoidable

Last month, Canada reported a slightly slower inflation growth, but, according to one experienced Bay Street economist, the recent data will force the Bank of Canada to follow its rate-cycle path.

“There is nothing that will push the central bank out of its aggressive policy,” – David Rosenberg, the founder and president of Rosenberg Research, noted.

Statistics Canada’s latest report shows that the consumer price index was up by 7.6% annually in July, which is a little bit less than an almost 40-year high record of 8.1% we’ve seen in June.

“Let’s be honest, 7.6% is better than the peak numbers of June, but it was 4.8% at the end of the previous year, and it was 3.7% a year ago. So, basically it’s still twice more than a year ago, and it’s the third-highest result in the past four decades,” – he noted.

The largest drop since the beginning of the pandemic was reported in gasoline prices. The cost of living was up by 6.6%, following June’s 6.5% increase.

“In my opinion, the BoC will most likely raise its key lending rate by 0.75% next time. There is a slight chance of a half percent hike. We’ve become so used to increases by 0.75% or 1%. A year ago, even a 0.50% hike would have shocked us,” – he says.

As you know, the central bank started raising its overnight rate in March trying to bring the skyrocketing inflation back to the target level of 2%.

“An inverted yield curve in addition to rate increases is playing with fire when it comes to the national economy,” – Rosenberg warned.

“I believe a recession is unavoidable for the BoC. It may wish to crush inflation first as it’s their number one priority now.”