As inflation keeps cooling, economists say wages likely hurdle for 2% target

Statistics Canada's consumer price index report set to be released Tuesday is expected to show inflation slowed once again in April.

Canadians’ wages are finally growing faster than prices as inflation continues to ease, but that isn’t necessarily good news for economists who worry high wage growth might stand in the way of bringing inflation back down to the two per cent target.

Statistics Canada’s consumer price index report set to be released Tuesday is expected to show inflation slowed once again in April.

A combination of easing global pressures and higher interest rates have brought inflation down significantly since last summer in both Canada and the U.S. Here in Canada, the inflation rate has been nearly halved, slowing from a peak of 8.1 per cent to 4.3 per cent in March.

TD is forecasting the annual inflation rate was 4.0 per cent in April. The commercial bank also expects food inflation, which has strained people’s finances considerably, eased last month.

The slowdown in inflation gave the Bank of Canada justification to pause its aggressive rate hiking cycle earlier this year and opt for a wait-and-see approach.

The Bank of Canada is forecasting inflation will fall to about three per cent in the coming months. The path to two per cent inflation is expected to be much longer, however, as the central bank expects inflation to return to target by the end of 2024.

Its key interest rate sits at 4.5 per cent _ the highest it’s been since 2007. Higher borrowing costs caused by the rate hikes are expected to nearly halt economic growth this year.

But the Bank of Canada has said it won’t be satisfied until inflation comes back to its two per cent target. To gauge what the path to two per cent inflation will look like, the central bank is keeping a close eye on a specific part of the economy: the labour market.