Global inflation picks up, bringing a squeeze on Canada

Heather Scoffield is Chief Policy Analyst at the C.D. Howe Institute. S

The Reserve Bank of Canada held interest rates steady this month, but its governor, Stephen Poloz, painted a more upbeat outlook for the Canadian economy than that has been seen in recent months. Mr. Poloz credited the waning effects of the U.S. federal tax cut and potential negative fallout from President Donald Trump’s trade policies as reasons for the slowdown. This was a change from the RBC Economics forecast, published Wednesday, that predicts the slowdown in growth will translate into a 0.1% cut in GDP in the second quarter of 2018. This, in turn, could push inflation to 1.1% in the same period, and 1.2% in the third quarter.

The consumer price index figure for May will be released in the coming weeks. At last month’s RBC forecast, Mr. Poloz predicted inflation to bottom out in June, but it could reach 1.4% by September. If the C.D. Howe Bank of Canada does predict an above-target inflationary figure for May, it would be a strong sign that the economy is starting to tighten.

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