In this section taken from Courrier de l’Économie, our journalists answer questions from our readers.
What are the most credible long-term projections of the consumer price index, the famous CPI?
Normally, the reference with regard to the present and future trajectory of consumer prices in Canada is its central bank, one of whose main missions is precisely to seek to keep inflation low and stable. In its latest overview of the situation, drawn up at the end of October, the Bank of Canada noted that inflation had dropped significantly since summer 2022but that it still remained well above its objective of 2% over 12 months, defined as the middle of a range which could go from 1% to 3%.
Like several other central banks, the institution did everything to curb demand from businesses and consumers by implementing increases in its interest rates of unprecedented magnitude and speed, but it was very forced to realize that the road might still be long. She observed in particular that the increase in food and gasoline prices still far exceeded its target, not to mention the cost of housing, strongly influenced, ironically, by the rise in interest rates as well as that of wages. , which seeks to make up for lost purchasing power.
In this context, it predicted, to answer your question, Mr Audet, that the increase in the prices of some 700 goods and services included in the calculation of the consumer price index would not return to the desired annual rate of 2 % before somewhere in 2025. The increase is expected to remain around an average of 3.5% by the middle of next year.
But as everyone knows, predicting the future is a risky exercise, especially when it comes to a phenomenon as complex and interrelated to external factors as the economy, particularly in these turbulent and unpredictable times. Central banks recently had the cruel experience of this in the wake of the COVID-19 pandemic, which turned everything upside down, after which was added, among other things, the invasion of Ukraine, the difficult awakening of the Chinese economy and the explosion of the Israeli-Palestinian conflict.
As proof, the Bank of Canada’s forecasts, barely two years ago, predicted a return of inflation within its target range by the end of last year. The last investigations conducted by the central bank among Canadians and their businesses show that they are increasingly doubtful of its ability to bring inflation back to its target, at least before three years. They may gradually change their minds as economic reality evolves.
At the end of last month, Statistics Canada reported, for example, that annual inflation had slowed from 3.8% to 3.1% in October in the country and from 4.8% to 4.2% in Quebec. Part of this decline was mainly the result of the somewhat misleading effect of the change in the 12-month reference, but we also saw it as a reflection, in particular, of an economy which is running more and more slowly.