Economists are predicting the Bank of Canada will hike its key interest rate by three-quarters of a percentage point on Wednesday as inflation rages on globally.
The Bank of Canada raised its key interest rate by half a percentage point on June 1, bringing it to 1.5 per cent. Since then, it has signalled a willingness to move in a more aggressive direction.
“With the economy essentially at full employment, wages starting to stir meaningfully, and headline inflation poised to test eight per cent in this month’s consumer price index report, the Bank of Canada’s task is clear at next week’s decision,” wrote BMO chief economist Douglas Porter in a weekly report on Friday.
The Bank of Canada has identified both domestic and international factors leading to soaring inflation. Domestically, the bank says there’s excess demand in the economy, while globally, supply chain problems and the war in Ukraine continue to put upward pressure on prices. Laval University economics professor Stephen Gordon said the primary reasoning behind a larger rate hike would be to rein inflation expectations.
Economists become concerned when people and businesses start anticipating high inflation, as expectations impact future pricing of goods and services as well as pay negotiations. “I don’t think we’re anywhere near that risk yet, because the policy rate is still low and the economy is running really well,” Gordon said.
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