Bank of Canada hikes rate by another 50 basis points to 1.5% — via financialpost Economy Canada ratehike
The central bank has selected a steep path to higher interest rates. Policymakers have now raised borrowing costs at three consecutive meetings, and at the last two they opted for unusually large half-point increases, the first time that’s happened since the Bank of Canada started scheduling interest-rate announcements in 2000.
The consumer price index “will likely move even higher in the near term before beginning to ease,” the statement said. That easing will require higher interest rates to choke demand. “Inflation continues to broaden,” central banker observed, citing their “core” measures of price pressures, all of which are above three per cent.
Still, policymakers were caught off guard by how quickly the economy recovered from the COVID recession. The jobless rate is now at a modern low, and Statistics Canada reported May 31 that the economy pushed through the latest wave of COVID-19 and“Canadian economic activity is strong and the economy is clearly operating in excess demand,” the Bank of Canada said.
But as housing prices tumble, wage growth “has been picking up and broadening across sectors.” That will help households keep up with higher prices, but it also suggests that policymakers might be losing its grip on inflation expectations: if you trust the central bank to keep prices under control, you might not ask for a big raise. Expectations notwithstanding, higher wages are indicative of a market that is starved for supply.
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