It’s a topic that isn’t getting much attention these days but it something we should not ignore. And that’s inflation.
While it feels like inflation has been tamed – if for no other reason that we’ve stopped talking about it – there are still problematic signs out there. And they may even get in the way of expectations of lower interest rates.
The caution flag is being raised by the economics team at BMO Bank of Montreal, noting that while CPI or consumer inflation has been improving lately, there are some unsettling signals emerging farther up the supply chain.
Inflation in the producer pipeline or supply chain rose nearly ten-percent in January on an annualized basis. Much of the blame lies at the feet of the Canadian dollar which has depreciated substantially in recent months. That makes imports more expensive, something that takes a few months to work its way through the supply chain.
If inflation does begin to increase again or even if it simply stops declining, no doubt the central bank will hold the line on interest rates rather than cut any further.
