Canada Inflation data hinting at deflation?

Today is Feb 20th, 2024. Canada reported inflation numbers earlier this morning. Here's a snapshot:

- Inflation MoM: 0.0/0.4

- Inflation YoY: 2.9/3.3

- Core Inflation MoM: 0.1

- Core Inflation YoY: 2.4

Overall, the 6-9 month trend for Inflation rate appears to be heading towards -0.1% mark, while the trend for Core Inflation appears to be heading towards the 0% mark.

This datapoint and the trend picture leads us to ask a few important questions:

1) Can we declare victory over inflation, at least during the most recent battle?

2) Are we on the verge of flipping over into deflation?

3) Is the Bank of Canada ready for this economic turn?

I won't tell you I have all the answers. The fight with inflation (& deflation) is a day-to-day thing. Everyday you almost start from square one. That being said, numbers don't lie (of course unless its cooked or revised away), and the numbers are clearly pointing towards the fact that the most recent battle with inflation has been won, and the bigger risk right now is appearing to be deflation. And its time to prepare for that.

That being said, we can't ignore the X-Factors. And those are as follows:

1) We're highly integrated to the global market via currency and trade. And a complete out-of-step move could result in currency devaluation, which might hasten the return of inflation.

2) Of those global integrations, our deepest integrations is with the US. So, be it leading or lagging, we ought to be in-step with the US. The issue is, US is undergoing an economic boom, and there is almost no spillover into Canada. This creates a structural issue, that needs to be resolved between fiscal and monetary policies.

3) The Volker resurgence continues to remain an ongoing risk.

Credits:

Narrated by Sid Barthakur

Music by Alexi Action from Pixabay