What to Make of Current Inflationary Pressures?

Due to the way inflation metrics are calculated, consumer price index (CPI) in Canada and the United States is set to increase drastically in the following months on the back of base effects. Beyond base effects, there are signs of price pressures that could potentially find their way through to consumers. We take stock of the current price situation in both goods and services—looking beyond consumer prices—and assess what could be the potential drivers of sustainably high inflation. This assessment leads us to believe that the days of inflation risks being mostly skewed to the downside are probably over. There is a lot to celebrate in this, particularly if it means less distortive monetary policies, but we also have to hope that policy is not overdoing it and ends up skewing inflation risks to the upside on a persistent basis.