OTTAWA — A sizable segment of the Canadian population believe inflation is higher than the actual measured rate, and that is partly attributed to a run up in housing prices in major Canadian cities, a senior Bank of Canada official said.
Lawrence Schembri, a deputy governor at the central bank, said the central bank must strive to explain inflation to Canadians, because a wider gap between actual and perceived inflation could have ramifications on consumer spending and saving, and therefore the broader economy.
“Many people feel that the official inflation rate does not reflect the higher inflation they believe they are facing,” Mr. Schembri said, according to prepared remarks he was scheduled to deliver to a virtual gathering of economists. “This gap between perception and measurement has been more pronounced during the pandemic.”
The central bank’s objective is to set its benchmark interest rate at a level that attains and maintains 2% annual inflation. Consumer-price increases have slowed markedly with the onset of pandemic. For July, Canada’s annual inflation rate decelerated to 0.1%, relative to the previous month’s 0.7% reading.
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Mr. Schembri said the Bank of Canada, in conjunction with Statistics Canada, has conducted surveys among the public about their views of inflation. He said the findings indicate consumers’ perceived inflation rate is generally above the actual CPI rate–although still “reasonably close” to the 2% target.
“We don’t take for granted that inflation expectations are anchored at the target,” he said, adding the central bank plans, for the first time, to consult with Canadians when it comes time to renew the Bank of Canada’s inflation-targeting regime next year. “This mooring will be tested by the very rough economic waters caused by the pandemic.”
Research suggests, Mr. Schembri said, that consumers’ perception of inflation is likely influenced by the price of houses. Those prices last decade surged upward in metropolitan areas such as Toronto and Vancouver, British Columbia.
Canada’s CPI data measures the cost of ownership to maintain a house, but not the price of a house. Over the last two decades, Mr. Schembri said, the price of houses has risen on average more than twice as fast as the cost of maintaining a residence.
USD/CAD Price Analysis:
Clings to 200-week SMA, 1.3100 in the spotlight
👉 USD/CAD remains on the back-foot near the seven-month low flashed on Monday.
👉 The key SMA probe bears ahead of an ascending trend line from April 2018.
👉 A falling trend line from March offers immediate resistance.
USD/CAD stays pressured around 1.3170 amid the initial Asian session on Wednesday. The loonie pair slumped to the fresh low since late-January on Monday before bouncing back to 1.3217. Though, Tuesday’s selling defied hopes of the pair’s upside even if 200-week SMA confined the latest moves.
Considering the sluggish conditions of RSI and the pair’s sustained trading below the five-month-old resistance line, sellers are likely to keep the reins, which in turn can drive the quote towards the fresh seven-month low around 1.3100, comprising an ascending trend line from April 2018.
In a case where the pair fails to bounce off 1.3100, 61.8% Fibonacci retracement of 2017-20 upside, near 1.3055, will entertain the bears ahead of the 1.3000 thresholds.
Meanwhile, the buyers will look for entries past-1.3300 with the June month’s low of 1.3315 likely offering additional upside filter.
In doing so, the bulls can target May 2019 top surrounding 1.3565 while late-July peak close to 1.3470 may pose as a buffer.
USD/CAD weekly chart (FXStreet)
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