Economists Raise Canada Inflation Forecasts Amid Middle East Oil Price Surge
A Bloomberg survey shows economists have increased their inflation expectations for Canada, citing rising oil prices due to Middle East conflicts. While forecasts suggest inflation will average 3% over the next six months and not return to target until late next year, most experts do not anticipate an interest rate hike from the Bank of Canada until June.
Economists participating in a recent Bloomberg survey have raised their inflation forecasts for Canada, driven largely by a resurgence in oil prices linked to ongoing conflicts in the Middle East. The consensus now expects the consumer price index (CPI) to average three percent over the next six months, a figure that is 0.6 percentage points higher than last month's projection.
According to the survey results, price pressures are not expected to ease back to the Bank of Canada’s two percent target until the third quarter of next year. This "higher-for-longer" outlook aligns with warnings from Bank of Canada Governor Tiff Macklem, who noted that elevated gasoline prices could keep headline inflation above target and spread price pressures more broadly across the economy.
Despite the upward revision in inflation expectations, there remains a divergence between economist forecasts and market pricing regarding monetary policy. Most economists surveyed do not expect the central bank to raise interest rates from the current level of 2.25 percent until its meeting in June next year. However, traders in overnight swaps have priced the odds of a rate hike at the bank’s October meeting at approximately fifty percent, creating a conflict with the median economist view.
The survey also indicates a weakening growth outlook. Economists now see annualized growth of 1.5 percent for both the fourth quarter of this year and the first quarter of next year, down from 1.7 percent in the previous month's survey. Additionally, the probability of a recession has been estimated at 30 percent.
Investors and policymakers will look for further clarity when Statistics Canada is scheduled to release new inflation data on Oct. 19.