Canada likely to see higher inflation rate next year

Canada's economic activity improved in Q3 as the economy posted 2.3% qoq growth against -0.3% in previous quarter. Moreover, the components of GDP like consumption, net exports are positively contributing to GDP.

The central bank of Canada is giving an indication of rate hike in near future. The Bank assumes that the inflation rate is increasing due to expansionary fiscal policy, but it is confident that the inflation rate will be within the target range in 2016. Due to the expansionary fiscal policy, the fiscal deficit of the economy is expected to increase.

"The largest change in terms of assumptions, though, came from the fiscal side, incorporating a 0.85% of GDP deficit for the fiscal primary result this year (from a 0.15% surplus previously), while keeping a 0.7% primary surplus in 2016. Under these assumptions, inflation forecasts were increased both this and the next year, while remaining near the mid-point of the target by 2017", states Barclays in a research note.