At a Glance

September 19, 2022
2 min
At a Glance: How persistent is high inflation? 

Wage inflation has hit a new high with a 5.4% increase year over year.  The markets expect costs to remain elevated at 4.5-5.5% over the next 12 months. While long term inflation expectations (5 years forward) have remained stable in the 2-3% range, the gap between short term and long term is narrowing. A prudent financial forecast assumes long term contract pricing to move up, and short term prices to remain higher, for longer - as inflation expectations converge.

Where are we now?

  • Hourly Earnings have increased 5.40% this year vs last  
  • Wages have steadily increased every quarter since Q2 ‘21
  • 1 Year forward (Fall 2023) inflation expectations remain elevated at 4.6%
  • 5 years forward (2027) inflation expectations have been relatively unchanged, currently at 2.8%

Where do we go from here?

  • Plan for elevated inflation of 4.5-5.5% over the next year
  • The ~2% gap between long term and short term inflation is expected to narrow  

What does this mean for Canadian business?

  • Assume inflation is persistent and here to stay longer than most expect
  • 4-5% wage inflation is expected to continue into 2023
  • Long term contracts pricing/cost assumptions should include 3%+ yearly increases

SOURCES

https://www.bankofcanada.ca/rates/indicators/capacity-and-inflation-pressures/

https://www150.statcan.gc.ca/n1/daily-quotidien/220909/dq220909a-eng.htm

https://fred.stlouisfed.org/series/MICH

https://www.mql5.com/en/economic-calendar/united-states/michigan-5-year-inflation-expectations

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