Almost!

 

Inflation has caused all kinds of problems for people everywhere by eroding the purchasing power of consumers’ money, reducing the value of their savings, and making goods and services more expensive over time. When families get together this weekend, it is likely someone will comment on how expensive everything is. This is why central banks spend so much time trying to keep inflation in line. Fortunately, it appears they finally have it under control…

 

As you can see from the chart below, the US Consumer Price Index (excluding shelter) peaked at 10.8% last year and is now down to 1.9%. This is below the 2% target. Having said that, this index does not include shelter.

As shown in the next chart, shelter is also starting to come down. Rents have finally reached a normalized level; however, shelter overall is still high at 5.7%. It is important to note that the shelter component makes up 40% of the Consumer Price Index. So, until we see shelter below 3%, it is unlikely that the US central bank will hit its 2% target. Fortunately, the trend is promising.

 

I should also emphasize that these are US numbers. The US economy is growing at 3.2% while the Canadian economy is only growing at 1%. It is likely that Canada will hit our inflation number well before the US and, in turn, cut rates sooner and deeper than what the US will have to do.

 

 

I've also included a piece from our CIBC Economics team entitled "The productivity malaise: a symptom, but not the disease”.

 

As always, if you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan