The Bank of Canada may not rule out more rate increases in light of April’s higher-than-expected inflation numbers, experts suggested on Tuesday.
According to Statistics Canada’s report released on Tuesday, inflation increased to 4.4% in April over the prior year. The percentage was above the 4.1 percent forecast from experts and increased from the 4.3 percent rate posted in March.
The Bank of Canada has kept interest rates at 4.5 percent for the past few rate decisions, but according to CIBC economist Avery Shenfeld, the most recent data could signal a return to rate hikes as early as the central bank’s meeting on June 7.
“Staying on hold is now highly dependent on seeing a slowdown in the labor market, so the risk of a return to rate hikes at the next (monetary policy report) release cannot be ruled out,” Shenfeld wrote in a note released on Tuesday.
The following labor report from Statistics Canada is anticipated on June 9.
Although Canada has done better than some other nations in bringing down inflation, according to Eric Theoret, global macro strategist at Manulife Investment Management, the battle to bring inflation down to the two percent target is far from over.
He claimed that although the Bank of Canada would leave rates unchanged in its upcoming monetary policy meeting, Tuesday’s inflation data and the recent surge in employment could lead to further tightening.
I believe it would be a neutral decision with the potential for a hawkish shock,” he said.
In contrast, the founder of Devlin Capital, Ed Devlin, predicted that the Bank of Canada would continue to hold interest rates steady for the foreseeable future and that further rate increases were improbable at this time.
In a television appearance, he stated, “I find it exceedingly unlikely they’ll change policy.
MARKET PROSPECTS
According to Theoret, the Bank of Canada is fighting both inflation and market expectations for an impending rate reduction.
To persuade customers and markets that “the bias is for interest rate increases,” the central bank will therefore need to continue its aggressive tactics, according to him.
Since they still have a lot of work to do to bring inflation back to target, central banks simply can’t intervene to ease as they did in the past in response to high inflation, according to a television interview with Theoret.
He claimed that the statistics will affect the Bank of Canada’s use of language in public communications.
Despite, I believe, what many have seen as somewhat of an implied pause for both the Bank of Canada and the (U.S.) Fed, it is important to make sure that consumers, firms, and the economy as a whole comprehend that the preference for interest rates is still to the upside.
Devlin stated that even if the pace of inflation has drastically decreased from the previous year, he believes some market observers are getting impatient with rate-cut expectations.
“The trend is excellent, However, I believe we still have a lot of timber to cut,” Devlin remarked. “Those who are predicting impending policy changes are probably jumping the gun.”
COMPANY IMPACT
Consumers are beginning to feel the effects of the central bank’s tightening drive, according to Theoret, which started over a year ago.
In April, housing costs increased by 4.9% annually, with mortgage costs increasing by 28.5% over the previous year. Rents increased by 6.1% as well.
That, according to Theoret, illustrates how mortgage expenses are “a very big component of the inflation narrative” that is particularly onerous on consumers.
