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October 2021 Inflation
November 20, 2021
7:04 am
RetirEd
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Let me start out by stressing that I am NOT here to bash the poor.

But living at the margins of one's income - or the margins of one's credit - does not always mean one is economically stressed. A certain proportion of our population will always choose to spend everything they have or can borrow. They are NOT the norm or even (probably) the majority, but they do help explain the difference between poverty levels and the level of people with no savings cushion.

We need better financial education in schools and pop culture. But that wouldn't benefit the vultures who carpet us with bad financial deal offerings.
RetirEd

November 20, 2021
7:37 am
AltaRed
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canadian.100 said

I believe the 5 year GoC bond has now increased to around 1.5% up from almost 0 last year. Still a big difference from the inflation rate of over 4%.  

That is because the bond market does not believe current inflation rates are any more than transitory, or they look at the bigger, e.g. 2 year picture. Granted, bond yields are not always positive in real terms, but tens of thousands of bond traders are seldom that wrong. As I have articulated at least a few times, we will only know if today's YOY inflation rates are something more than transitory by late Spring/early Summer 2022.

November 20, 2021
9:02 am
Loonie
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AltaRed said

That is because the bond market does not believe current inflation rates are any more than transitory, or they look at the bigger, e.g. 2 year picture. Granted, bond yields are not always positive in real terms, but tens of thousands of bond traders are seldom that wrong. As I have articulated at least a few times, we will only know if today's YOY inflation rates are something more than transitory by late Spring/early Summer 2022.  

What is so special about Spring/Summer 2022? Why should we accept that as the target date for declaring inflation to be temp or not?

November 20, 2021
9:50 am
AltaRed
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Loonie said

What is so special about Spring/Summer 2022? Why should we accept that as the target date for declaring inflation to be temp or not?  

Because it was only late Spring 2021 where the economy (GDP, employment rate) bounced back enough to consider it returning to trend, i.e. in line with the pre-2020 covid crisis. That is also when 2021 YOY inflation over 2020 started to show significant numbers as per https://www.rateinflation.com/inflation-rate/canada-inflation-rate/

It is pretty evident from the table starting in Mar/Apr 2021 why YOY numbers started to jump. We should expect Apr-Jun 2022 YOY inflation numbers to fall back considerably if primarily transitory. If not, then I will buy into there being more to it and the need for the central bank to intervene in a significant way.

November 20, 2021
10:03 am
Vatox
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canadian.100 said

I believe the 5 year GoC bond has now increased to around 1.5% up from almost 0 last year. Still a big difference from the inflation rate of over 4%.  

Yes, I don’t see a market driven bond increasing to 5%.

November 20, 2021
10:25 am
Vatox
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Transitory or not, the inflation is hurting. They are so concerned about pushing the recovery. I think that even if inflation returns to target in the Spring, the state of money management will be worse. That’s because debts will be even higher and if there is a desperate need to increase rates, due to lingering high inflation, it will do more damage than if it’s done today or back in September. It’s all hanging on Spring returning to target inflation. And then you are still stuck with higher debt loads. Without raising interest rates now, it’s all bad.

November 20, 2021
11:42 am
savemoresaveoften
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AltaRed said

That is because the bond market does not believe current inflation rates are any more than transitory, or they look at the bigger, e.g. 2 year picture. Granted, bond yields are not always positive in real terms, but tens of thousands of bond traders are seldom that wrong. As I have articulated at least a few times, we will only know if today's YOY inflation rates are something more than transitory by late Spring/early Summer 2022.  

The relation btw govt bond yield vs inflation is a lot weaker in the last 10 years compared to what we used to be in the past. I would go as much as saying only retail investors / savers still think that way.
Govt bonds is a place for institutions to "park" their cash, whether they choose to keep it in cash or "required to". Not just institutions either, but really any higher authorities that want a safe place to put their cash. The yield to them is not as relevant, as its a safety deposit box, not an inflation fighter like what retail guys think.

November 20, 2021
12:59 pm
AltaRed
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Institutions would more likely pick T-bills than 5 year bonds to park cash. Certainly that is where the multi-national I worked for did, along with commercial paper. 5 year bonds still correlate to inflation relatively well over rolling periods of time. https://www.ratespy.com/5-year-canada-bond-yield

November 20, 2021
2:15 pm
Loonie
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AltaRed said

Because it was only late Spring 2021 where the economy (GDP, employment rate) bounced back enough to consider it returning to trend, i.e. in line with the pre-2020 covid crisis. That is also when 2021 YOY inflation over 2020 started to show significant numbers as per https://www.rateinflation.com/inflation-rate/canada-inflation-rate/

.  

That explains your starting point perhaps, but, to me, it doesn't explain your end point. Your expectation seems to be that at about the one year mark this 'temporary" situation will go away. I can see that it's a somewhat useful measuring point, but why would you think things would normalize at that point?

I'll hold you to your word come next summer! But the problem is that we are all having to make decisions today based on spec about tomorrow. BoC agrees with you, but they seem to be more reactive than anything and frequently change their forecasts accordingly. I'm just trying to track down people's reasons for their spec. I know why I don't think inflation is going way any time soon, but I could be wrong.

November 20, 2021
3:36 pm
Vatox
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Loonie said

That explains your starting point perhaps, but, to me, it doesn't explain your end point. Your expectation seems to be that at about the one year mark this 'temporary" situation will go away. I can see that it's a somewhat useful measuring point, but why would you think things would normalize at that point?

I'll hold you to your word come next summer! But the problem is that we are all having to make decisions today based on spec about tomorrow. BoC agrees with you, but they seem to be more reactive than anything and frequently change their forecasts accordingly. I'm just trying to track down people's reasons for their spec. I know why I don't think inflation is going way any time soon, but I could be wrong.  

I think what is expected, is that employment will stabilize and unemployment won’t continue to fall or at least not as fast. Consumption should then level off and reduce the pressure on supplies. We don’t know exactly how it’s going to play out. April/May 2020 was when unemployment topped at like 13% or something and has come down to 6.7%. The YoY consumption values “should” be closer together or not so far apart. We will see. And it still doesn’t do squat for now.

November 20, 2021
9:41 pm
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Maybe I'm missing something, but I don't find these projections at all convincing.

November 20, 2021
11:41 pm
Vatox
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Loonie said
Maybe I'm missing something, but I don't find these projections at all convincing.  

I don’t either because there is far more going on than employment. The changes in skilled labour are creating inefficiencies and the rising of wages is adding to the inflation. Supply chains and the movement of goods have big issues too. All we can do is wait and see what transpires.

November 21, 2021
8:48 am
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Vatox said

I don’t either because there is far more going on than employment. The changes in skilled labour are creating inefficiencies and the rising of wages is adding to the inflation. Supply chains and the movement of goods have big issues too. All we can do is wait and see what transpires.  

Yes, it's much more complicated than often portrayed.

November 21, 2021
8:52 am
Norman1
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Kidd said
… I thought, Canadians have more money than they know what to do with. Maybe the likes of Rogers, air canada and every insurance company in this country are right to charge more for their substandard service, because Canadians are filthy rich.

Maybe I've been looking at our economic picture with my head in the sand. My view has always been, the glass is half empty, maybe if i had a smaller glass it would be over flowingly full and my outlook would change to the positive.

If one just focusses on the half empty glasses, then one will miss the ones that are overflowing!

There aren't multiple sources for those "53% of Canadian households are $200 or less from insolvency" news items. They are all quoting the same Ipsos poll.

The same poll also says the following:

…, the Index has also found that households are reporting having less money left over at the end of the month ($625 on average, -$108 from December). …

Overall average is $625 away from insolvency.

If 53% of Canadian households are $200 or less each month, then then other 47% must be averaging $1,104 or more each month to pull the overall average up to $625:

$200 x 0.53 + $1,104.25 x 0.47 = $624.998

The other 47% have overflowing glasses, averaging $1,104+ left each month after their expenses.

Lots of Canadian households are well off. With $1,104+ left after each month, some of them can afford a few dollars more on their utility bill or insurance bill.

November 21, 2021
9:01 am
AltaRed
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Loonie said

That explains your starting point perhaps, but, to me, it doesn't explain your end point. Your expectation seems to be that at about the one year mark this 'temporary" situation will go away. I can see that it's a somewhat useful measuring point, but why would you think things would normalize at that point?

I'll hold you to your word come next summer! But the problem is that we are all having to make decisions today based on spec about tomorrow. BoC agrees with you, but they seem to be more reactive than anything and frequently change their forecasts accordingly. I'm just trying to track down people's reasons for their spec. I know why I don't think inflation is going way any time soon, but I could be wrong.  

I am suggesting late Spring/early Summer 2022 is the point where YOY inflation should trend back to normal (<3%) IF current inflation is transitory. We don't know that it is, or it is not and we won't know until we get there. In the meantime, I am not placing any bets (current rhetoric) that the sky is falling.

FWIW, I think the bond yield curve has further to climb with GoC5 2-2.5% by next summer (and BoC will raise short term rates once or twice by then as well) so I wouldn't recommend locking into 5 year GICs at this time (not that I buy GICs any more anyway).

November 21, 2021
9:56 am
Norman1
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The October CPI level of 143.9 is not that bad.

The October CPI is away from the more-moderate 2.6% per annum trajectory since August (brown line). It is more towards the 6% per annum trajectory since January (red line):
OctCPI.png

That could be just a seasonal blip, like the October 2019 and October 2020 CPI values.

Inflation target is actually 2% per annum (green line) and not zero. CPI prices have been below target for over a year until April.

October CPI of 143.9 only 1.6% above the 141.6 it would have been with target 2% per annum inflation from pre-pandemic January 2020.

As AltaRed mentioned, the YoY CPI changes are not meaningful with such unsteady CPI price changes last year.

November 21, 2021
10:16 am
Vatox
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Norman1 said

Kidd said
… I thought, Canadians have more money than they know what to do with. Maybe the likes of Rogers, air canada and every insurance company in this country are right to charge more for their substandard service, because Canadians are filthy rich.

Maybe I've been looking at our economic picture with my head in the sand. My view has always been, the glass is half empty, maybe if i had a smaller glass it would be over flowingly full and my outlook would change to the positive.

If one just focusses on the half empty glasses, then one will miss the ones that are overflowing!

There aren't multiple sources for those "53% of Canadian households are $200 or less from insolvency" news items. They are all quoting the same Ipsos poll.

The same poll also says the following:

…, the Index has also found that households are reporting having less money left over at the end of the month ($625 on average, -$108 from December). …

Overall average is $625 away from insolvency.

If 53% of Canadian households are $200 or less each month, then then other 47% must be averaging $1,104 or more each month to pull the overall average up to $625:

$200 x 0.53 + $1,104.25 x 0.47 = $624.998

The other 47% have overflowing glasses, averaging $1,104+ left each month after their expenses.

Lots of Canadian households are well off. With $1,104+ left after each month, some of them can afford a few dollars more on their utility bill or insurance bill.  

Again, the point being missed here, is that if a huge number of Canadians drown from the high inflation, it will seriously hurt the economy and all those overflowing glasses as well. Everything needs to be in harmony. Everyone depends on everyone else to keep things running smoothly. I don’t think the overflowing glasses will donate the excess to the half full glasses.

November 21, 2021
11:41 am
Vatox
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This article is from the end of July, but is a very good broad view about the inflation predicament.

https://globalnews.ca/news/8062946/higher-inflation-canada-could-last-years/

November 21, 2021
1:58 pm
Vatox
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Anybody doubting the survey numbers, here is one from 2017. Before the Pandemic and before the three rate hikes of 2018. It totally fits that numbers are worse now. But even if that 31% of “under water” people is better today, it’s still a problem for economic health of the country.

https://globalnews.ca/news/3434447/over-half-of-canadians-are-200-or-less-away-from-not-being-able-to-pay-bills/

November 23, 2021
8:39 am
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Here is an Ipsos poll from last year, right when the pandemic started.

https://dailyhive.com/vancouver/canadians-coronavirus-finances

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