Canada’s rising prices becoming entrenched, recession may be needed: economists

inflation in Canada are likely to peak in the fourth quarter of this year, economists told Reuters, though most see signs fast rising prices are becoming entrenched and warn a recession may be needed to avoid a spiral.Canada’s inflation data for August will be released on Tuesday, with analysts forecasting the headline rate will edge down to 7.3 per cent, from 7.6 per cent in July and a four-decade high of 8.1 per cent in June.But all eyes will be on the three core measures of inflation – CPI Common, CPI Median and CPI Trim – which taken together are seen as a better indicator of underlying price pressures.The average of the three hit a record high of 5.3 per cent in July.

Canada’s unemployment rate rose to 5.4% in August as interest rate hikes ‘bite’ Six of eight economists surveyed by Reuters see core inflation peaking in the fourth quarter as underlying domestic and global pressures start to ease, though the path back to the two per cent target will not be brisk.“Rapidly cooling growth, the pullback in housing prices, and less pressure on supply chains will help cap core inflation relatively soon,” said Doug Porter, chief economist at BMO Capital Markets.“However, we believe that it will be sticky, and will descend only slowly through 2023,” he added.The broadening of price increases, increased wage settlements, as well as rising consumer and business inflation expectations are signs that inflation is becoming more entrenched in the economy, economists told Reuters.

Six of eight said they see signs of entrenchment.That is an outcome that the Bank of Canada has hoped to avoid, saying it would require more aggressive interest rate hikes to bring inflation back under control.