Heading towards a re-acceleration of inflation in Canada ?

The Bank of Canada is the first western central bank to announce a pause to its interest rate hikes. Although this does not necessarily imply a pivot, it does display a more dovish approach after a year of hawkishness. Whether this is the right decision to make or not, we’ll leave that to BoC’s research staff and economists.

What seems to lack in Tiff Macklem’s reasoning is that Canada has had one of the harshest lockdowns and strictest travel rules among most democracies. The upcoming surge in tourism that will follow the removal of COVID-19 related restrictions, combined with an extremely tight labor market, hitting record numbers, set the stage for the reacceleration of inflation.

Canada’s concurrent surge in temporary and permanent residents while being home to one of the tighest housing markets among most developed economies, only makes things worse, driving away any expectations of a potential pivot in BoC’s policy in the second semester of 2023.

To better understand the manager’s reasoning (Etienne de Marsac) and the positioning of our fund Sunny Patrimoine 2.0, León Campillo, CFA offers us a detailed analysis of the impact of tourism and immigration on Canadian macroeconomics.

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