“Inflation forecasts have no value on paper”









Why is the current protection cycle different from what we have seen before?

By Wolf Richter for WOLF STREET.

When Canada’s May Consumer Price Index came out a few days ago – I would say “as expected” – it was much worse than expected and again surpassed inflation forecast by the Bank of Canada. . According to frustrated economists at the National Bank of Canada, CPI inflation is 1.5 percent higher than CPI forecasts, which is higher than any forecast along the way. “Tactically reducing inflation was the biggest secret so far,” wrote May.

“Therefore, if the May CPI report does not place alarm bells in the Board of Trustees [of the Bank of Canada]One has to check for a common heartbeat. ”

Canadian headline CPI rose 7.7 percent in May compared to a year ago, the worst since 1983, according to Statistics Canada.

The BoC has previously raised its policy price by 125 basis points to 1.50 percent. At the last meeting, it included the Hawkish language, which was more than expected and a big walk, such as the 75-point increase in the July meeting. The BoC has also started QT, and its accounting records have been declining since March 2021. But inflation and future falcon language are based on the BoC’s inflation forecasts: “Strategic inflation.” So this cycle of inflation will be exciting.

On a month-on-month basis, CPI jumped a staggering 1.4% since April, not up-to-date; And adjusted by 1.1% per season. As expected, I say.

March, April and May CPI rates, annual, year-over-year, rose 12.5 percent.

The red-hot month-on-month increase came on the board, and not just on items related to a few items. At a meeting on July 13, Bossi gave more than enough reasons to pull the trigger on the 75-point point tower.

“Inflation forecasts are not valued on paper.”

The BOC’s inflation forecast for each of its previous meetings in April 2021 is illustrated in the chart below by the National Bank of Canada’s Financial Markets. The red line is the correct CPI rate for each quarter. BOC estimates start at each meeting based on the current CPI size.

Therefore, at its April 2021 meeting (light blue, starting line below), inflation began to worsen, with the BoC forecasting that CPI will be below 3% by mid-2021 and then lowing to 2% by March 2022. Hahahahaha.

Then at the July 2021 meeting, the BoC forecast that inflation in Q3 2021 would grow by 3.8%, then fall to 3%, hahahaha and fall by 2% in Q3.

The chart above shows how ridiculously far these inflation forecasts are and how big this inflation is and how it has worsened even as commodity prices have started to fall.

“To the BOC viewers who are trying to compare today’s inflation with previous financial stimuli, despair. There is no comparison during the overnight price target period (which began in the mid-1990s). That is why the current cycle of protectionism is different from what we have seen before, said Warren Lovely and Taylor Schill, of the National Bank of Canada.

“While the last two BOC actions may seem brutal, now is the time to tighten the knots,” he said.

“An increase of 75 bp on July 13 will not solve Canada’s inflation problem, labor markets are not as strong as they used to be. On the plus side, vacancies are a clear concern, and Canada’s acute shortage of manpower will not be remedied as soon as healthy population growth begins. [through immigration]. ”

And they added – sprayed with astonishing inflation.

“To sum up, we have uncontrollable inflation. Just as some governments do (or intend to do) sending more money to families is like adding gasoline to the fire.

“Inflation requires an uber-strong BOC response, including a 75 BPP increase over three weeks.

“Special price increases (so far) have not done much to control prices but have turned the housing market down. Consumer psychologists bear the brunt of it, and the risk of decline increases.

“Indeed, in the face of such inflation, ensuring ‘soft landing’ can be like a needle’s eye. We have not completely given up hope, but we should be aware of today’s CPI report, even the most enthusiastic among us.

The federation has ridiculed its inflation forecast in every way and is now on fire for its “temporary” and temporary use. The ECB is surprisingly far from inflation forecasts. And their monetary policy – their refusal to raise prices from the beginning of 2021 and their unwillingness to stop QE and start QT at the same time is driven by this ridiculous inflation. But now you have the note.

It is ironic that big banks in Canada, as well as in the United States and elsewhere, are keeping inflation under control. After that, the economic and financial impact of inflation will be severe.

The stock and bond markets have reacted strongly to this trend, and in Canada, home markets are already “overturned,” and central banks are just beginning to crumble, and in recent decades the central bank has done nothing compared to what is to come. Next, and if the recession is part of the deal to control this escalating inflation, so be it.

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