The underlying pressures driving 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%, from 7.6% in July and a four-decade high of 8.1% in June.
"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.Reuters Graphics 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.
"We think aggressive interest rate hikes will be followed by a recession next year ... which would prevent expectations from coming fully unanchored," said Nathan Janzen, assistant chief economist at Royal Bank of Canada.
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