How much inflation could drop by the end of year

A new report suggests inflation could be cut in half by the end of this year.

Business consultancy firm RSM Canada’s The Real Economy, gauged the volatile economy and inflation for the year ahead.

It expects inflation will drop to 3 per cent by the end of 2023 — and even return to the Bank of Canada’s target of 2 per cent by the end of 2024.

Interest rate hikes, which have affected big-ticket consumer purchases like housing, are starting impact the economy. Though, “the increased cost of credit, though the effects of higher rates will take more time to register,” RSM’s announcement about its report said.

It also expects GDP growth to remain low this year and next as consumer confidence wanes, resulting in slowing retail sales thanks to persistent inflation.

On that note, GDP growth is expected to sit at about 1 per cent this year and rise to 2 per cent in 2024. That means Canada will likely avoid an economic recession, though there are headwinds like a housing contraction that can’t be ignored.

But while inflation looks to go down, what about interest rates? Not likely, RSM predicted, saying, rising interest rates are needed to cool inflation. It expects the Bank of Canada to raise the rate to 4.75 by mid-year and hold them there “to keep financial conditions tight.”

Recently, aftermarket observer John Price, suggested the era of low inflation and low interest rates may be at an end.

“But the fact is that we’ve been living in a Goldilocks globalization period,” he said of the last 30 years.

Without cheap capital, resources or labour, low inflation is challenged. “Therefore, inflation will struggle to remain at 2 per cent, unless somehow we empower the world with the kind of technology that raises their productivity,” Price added.