By Julie Gordon

OTTAWA (Reuters – Canada’s headline inflation may have reached a record 31-year low in March. But economists say the central bank has to fight to get the skyrocketing inflation back down to earth, before their expectations are set.

Even though March’s 6.7% inflation peak is reached and prices escalation slows down next month, the level of inflation remains at the same levels it was 30 years ago. Economists predict that the Bank of Canada must act quickly to bring back its target of 2%.

There is a possibility that inflation will rise even more, especially as Statistics Canada updates its basket weighting and adds used cars prices to its index – which are key drivers of U.S. inflation.

March’s stronger-than-expected print has economists calling for a second 50-basis-point (bp) increase in June to take rates to 1.5%, with money markets betting on a total of 250 basis points worth of hikes this year.

Some economists have already predicted a third 50-bp increase in July. Scotiabank is calling for an additional 75-100 bp move between June and July. The central bank moves at most 25-bp per hour.

Jimmy Jean (chief economist at Desjardins Group) stated, “The peak” is only one milestone. After that, you must get inflation down. That’s going be a long process. We don’t expect that to happen until 2023.

Last week the Bank of Canada made a rate determination and stated that inflation is now at almost 6%. It will ease to 2.5% later on in 2023 before dropping to 2% in 2024.

Tiff Macklem, Bank of Canada Governor, stated that the Bank of Canada would not hesitate to take a forceful action if necessary after increasing its key rate to 1%.

Inflation is a problem in many countries around the globe, due to rising demand and tight supply chains. Russia’s incursion in Ukraine has increased the pressure and sent commodity prices up.

According to economists, any reduction in those conditions will likely be gradual. However, Canada’s Liberal government still injects stimulus to the economy. This helps fuel domestic inflation.

The Bank of Canada is left with the purse. It will start reducing its government bond holdings later this month, so they can roll off as it matures. But interest rates continue to be its main weapon in fighting inflation.

According to economists, Canada’s high-priced housing market and its large household debt will impact the direction of the central bank.

However, there is some hope. According to economists, inflation is now at 3% over the last 12 months. The base effect, which helps temper large gains while avoiding any significant global shocks in the future, should be able to offset outsized gains.

The pace of increases in gasoline prices has slowed from March to April, while the housing market shows signs that it is cooling. This will further ease the pressure.

Doug Porter (chief economist at BMO Economics), stated in a note that “it would be brave to call it the peak.” However, provided energy prices don’t rise further, this could indeed be the top for headline inflation.