The Globe and Mail reports in its Friday, Sept. 9, edition that as inflation soared beyond the Bank of Canada's forecasts, officials placed most of the blame on external factors like mangled supply chains and rising commodity prices. The Globe's Jason Kirby writes that while outside pressures are pulling down the inflation rate, domestic demand is pulling it up. TD Economics says if history is any indication, so-called Canadian-born inflation could leave consumers with higher prices for longer.
TD economists grouped inflation components into two categories -- those more exposed to external forces, like food, vehicle parts, furniture and fuel, and those driven by domestic demand, like restaurants, rent, child care and health care.
While the former category is slowing, the latter is picking up speed. TD economists note that in the 1970s and '80s, external shocks such as food and fuel drove up goods prices and helped tip the economy into recession three times. Yet each time, inflation in the prices of services, which is more tied to domestic demand, did not peak until more than a year later.
History does not always repeat itself, and TD's economists note the BOC now is more pro-active with rate hikes.
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