We were on December 20, 2022, at the end of the day, in the newsroom of The Press. The inflation rate was then 6.3%, a worrying level.
After examining the new data, I say: “Don’t worry, colleagues. I predict that next May or June, inflation will have fallen to 3.4%. And after that, it should gradually drop back to around 2% at the end of 2023 and the problem will be resolved. »
Murmurs of skepticism around me. My section manager, who takes me at my word, writes down the 3.4% prediction for June 2023 on a piece of paper and sticks it on his bulletin board. My inspiration came from research surrounding a column on the subject published at the end of November, among others, entitled “The worst is behind us”1.
My conclusion at the time: “Economists almost all predict that we will have returned to the range required by the Bank of Canada at the end of 2023, i.e. an inflation rate of 1 to 3%,” I wrote.
Verdict? In the end, I won my bet for the month of June. My target of 3.4% was even reached a month earlier in Canada, in May, before temporarily dropping to 2.8% in June, and rising to 3.3% in July. This is the rate which compares the current month to the same month of the previous year, and which is necessarily more volatile than the average rate over a few months.
On the other hand, I was wrong about reaching the Bank of Canada’s 2% target at the end of 2023, which continues to be pushed back.
On December 19, 2023, Statistics Canada reported that the inflation rate still stood at 3.1% in Canada in November 2023, a stable level compared to the previous month. And in its most recent forecasts, the Bank does not see the rate falling to 2% before mid-2025, i.e. in 18 months. Oops !
In hindsight, I should have polished my crystal ball better. Or get another one. In short, it’s my ball’s fault, let’s say…
My prediction of the drastic fall in the inflation rate in June was based on a technical point, namely that the rate of inflation would plummet after the spring of 2023, given that the boom was mainly explained by a marked increase in prices resulting from the war in Ukraine, launched in February 2022.
A year later, spring 2023 prices would no longer be compared to a low level, as in 2021, but to the high level which followed the war. The increases were bound to be less steep.
Almost no one predicted that inflation would be so persistent thereafter. Above all, no one knew the extent of population growth in the coming months, which had a major impact on housing prices.
Over the past two years, the Canadian population has welcomed more than 2 million immigrants, a record. The 3.2% annual increase in population over the past year is the highest since 1958; it is twice as important as that before the pandemic and at the summit of the G7 countries.
This population boom is putting enormous pressure on the housing market. Canada’s November 2023 inflation of 3.1% drops to just 1.9% when the housing component of the CPI is removed. In short, without housing, the Bank’s target would be achieved.
The other surprise is the gap between Quebec inflation and the Canadian average. Quebec’s inflation resisted the Bank’s interest rate hike for longer, probably due to the more acute labor shortage.
Until October, the rise in inflation remained above 4%, except during the two summer months of June and July. In November, finally, the pace fell to 3.6%, after a worrying increase of 4.2% in October.
The fact remains that Quebec has been the Canadian inflation champion for a year. Here, the rate over the past 12 months jumped 4.7%, on average, compared to 4.0% in Ontario and 3.5% in Alberta.
And now ? The slowdown in the pace of inflation is expected to continue, and according to Desjardins Group economists, “there are enough signs of progress in the November inflation report that we are still waiting for the start of rate cuts. ‘interest in mid-2024’.
My prediction for the end of 2024? My ball tells me that we will be down 2.6%, but doesn’t tell me any more. We’ll see.