April 16, 2021 | Central Banks are Nervous as CPI Soars
Hilliard MacBeth Author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash
Rapid inflation reared its ugly head this month, as the Consumer Price Index hit 2.6 percent gain for the last year.
The price increase for energy was closer to 15 percent, while food was almost 4 percent.
If the CPI keeps rising at this pace, as some predict, interest rates will rise.
What will central banks do if inflation goes well above 3 percent?
The Consumer Price Index for All Urban Consumers, headline CPI, jumped 2.6 percent year-over-year. Of course, last year in April the price of oil on the commodity futures market hit a record low of minus 37.63 dollars. OPEC, maybe a little terrified, agreed to cut 10 million barrels per day of production.
It was a busy week full of important economic readings, corporate news and earnings releases.
In the U.S., inflation numbers released Tuesday showed the Consumer Price Index jumping sharply from 1.7 per cent YoY in February to 2.6 per cent YoY in March. Price pressures have been front and centre as a rise in inflation maybe a troubling side effect of an expected surge in economic growth. Even with the yoy increase, many observers – including the Fed – believe a long-lasting rise in inflation remains theoretical and any spikes transitory as stimulus measures wane in the coming months.
Retail sales similarly surged in March, up 9.8 per cent, on the backs of stimulus money, vaccinations and business re-openings. There was also good news on the jobs front as fewer people applied for first-time unemployment benefits in the week ended April 10, a decrease from the prior week. Also in the U.S., Q1 earnings season got underway this week with many of America’s blue-chip companies al
Canadian banks want the government to take measures to halt the latest surge in home prices.
Several bank CEOs and economists are urging the government of Canada to slow the runaway housing bubble where prices are advancing at a 15 percent annual rate after inflation.
Will the government make bold moves to halt housing mania?
The banks are urging the government to act, but they do not specify exactly what measures they would like to see. The banks are conflicted in several ways.
The housing mortgage business, and related activity, is crucial to the banks’ profits.
Within the banks, mortgages and HELOCs are the largest share of total loans and management does not want to see a slowing of the growth rate of mortgage loans, especially given the recent slump in credit cards and business loans.
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