Case for another Bank of Canada rate hike built on wrong indicators
The growing case in financial markets for the Bank of Canada to raise interest rates again – perhaps as soon as this week – has been built on some pretty compelling economic data.Market pundits and economic commentators have taken two key economic releases in the past couple of weeks: a surprising uptick in the April inflation rate, followed by surprisingly strong first-quarter gross domestic product growth.
In the current circumstance, Mr. Macklem has been clear that it would take “an accumulation of evidence” that the inflation decline is stalling to convince the bank to resume rate hikes. A month of surprising numbers does not qualify as an accumulation. With the governing council in the midst of its deliberations for Wednesday’s decision, let’s consider where these indicators stand.Consumer price inflation on the services side of the economy stood at 4.8 per cent in April, and clearly remains a bigger problem than goods inflation, which was 4 per cent. Still, services inflation was down from 5.1 per cent in March, and has been falling steadily for six months. The April numbers maintained the downward trend.
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