Headline inflation in Canada accelerated its dropping to 3.1% in October. Excluding mortgage and rental, CPI has already been below 2%. It suggested that the fundamental cause of inflation had transitioned from supply/demand imbalance to tighten monetary policies.
Due to lack of forward thinking, the current monetary control strategy is effectively a bang-bang control scheme. High interest rate is the cause of high inflation, instead of a remedy to cure inflation. This was a similar situation to when ultra low rates accounted for much of low inflation.
Today’s inflation report confirmed two of my analysis:
1/ a note published on Nov. 9 where I said inflation excluding mortgage and rental to be below 3% by year end.
2/ a note published on Oct. 13 where I said inflation will drop faster in the next few months.