Inflation expectations raise red flags for variable rates

Someone let the inflation genie out of the bottle again, and if you wish to send a thank you note, mail it to Washington, D.C.

Anticipation of Trump’s tariffs has helped send Canadian inflation skyward by almost three-quarters of a percentage point — in just one month. The end of Trudeau’s vote-buying GST/HST holiday was also a minority factor.

The last time one-month inflation spiked this hard, the Bank of Canada had just unleashed a rate-hike blitz that juiced variable rates 475 basis points.

Behold the inflationary mess we’re now wading through:

This last one is most worrisome because expectations can be self-fulfilling. Tariff threats and a weakened dollar have Canadians convinced that wallet-sapping inflation is coming back.

But don’t panic, central bankers suggest. Governor Tiff Macklem says, “We focus on medium- to long-term expectations,” which indicates whether people believe that inflation will persist. If those measures shoot up, it would be a “big warning sign for us,” he said last week.

Well, it hasn’t happened in Canada yet, but at least one survey shows it’s happening in the United States — ironic since their economy is much less impacted by tariffs than ours.

The University of Michigan’s five-year inflation survey is screaming red alert, with expectations hitting a peak not seen since 1995. It’s even higher than during the pandemic, a nightmarish price-gouging period that’s still fresh in the minds of scarred consumers.

Given the data’s importance, it’s time to publish inflation expectations monthly. The stale quarterly Survey of Consumer Expectations doesn’t cut it. Canadians, who must factor in inflation when managing their finances and businesses, deserve better.

In any event, brushing off year-ahead