Inflation Could Be Halved

With price instability and a tight labour market spilling over into 2023, RSM Canada’s ‘The Real Economy Canada’ report says inflation in Canada could potentially be cut in half by the end of 2023. It expects inflation to fall to three per cent by the end of 2023 and return to the two per cent target by the end of 2024. However, interest-rate-sensitive parts of the economy, like housing and big-ticket consumer purchases, are starting to see the impact of the increased cost of credit, though the effects of higher rates will take more time to register. With waning consumer confidence and slowing retail sales induced by persistent inflation, it will translate into lower GDP growth in 2023 and 2024. However, it also expects the Bank of Canada to continue raising interest rates to cool persistent inflation and surging demand, which has been spurred by a hot labour market, saying it will likely raise its policy rate to a peak of 4.75 per cent by the middle of 2023 before holding rates in place to keep financial conditions tight. So, despite some positive signs, growing headwinds are hurting the Canadian economy to the point where the rising risk of a recession and a larger-than-expected housing contraction cannot be dismissed.