Inflation: Was the Bank of Canada too accommodating?

Desjardin’s economists, who have so far been reluctant to make bold forecasts about the decisions of the Canadian central bank, titled their Wednesday economic study with reference to the summer period: : chaud devant!”,”text”:”Inflation au Canada: chaud devant!”}}”>Inflation in Canada: hot ahead!

In fact, financial institutions are now in agreement: Given last month’s meteoric rise in the consumer price index, which hit its highest level since January 1991, the Bank of Canada should hike its policy rate by 50 basis points effective June 1, after doing the first times for more than 20 years last week.

Typically, like early March, increases are more moderate at 25 basis points.

If this prediction comes true, the rate will have gone from 0.25% to 1.5% in just three months.

The pressure on the portfolios of households that have taken out adjustable rate mortgages in the last two years will not go unnoticed. For example, a $400,000 house with a 20% down payment can see payments increase by at least $200 per month.

And it won’t be over, as the Bank of Canada plans to gradually bring inflation below 3% in 2023 and towards the 2% target in 2024.

This will therefore require several hikes in the base rate, enough to easily exceed the pre-pandemic base rate of 1.75%. According to Bloomberg, markets are suggesting that rate could reach 3.25% next year.

At the same time, it should be remembered that the prices of goods and services have exploded by 9.2% and 4.3%, respectively, over the past year. To your budget! Especially since the purchasing power of Canadians has eroded during this time: the average hourly wage in the country has only increased by 3.4%.

Whose fault is it?

Scotiabank is not soft on the Bank of Canada and blames it left lying around [sa politique monétaire] Step by step, and that’s a big part of why we got inflation numbers like this. Economic growth and low unemployment should have prompted the central bank to act earlier, she said.

This financial institution now believes there is even strong arguments for a rate hike from 75 to 100 basis points at once. They believe inflation could top 8% on an annualized basis in April if used car prices were included in the consumer price index, which would have been a first since the early 1980s.

Senator and economist Clément Gignac also supported economic zone Wednesday that the big boss current inflation data is the Bank of Canada, which has too late to raise interest rates. The probability of a recession next year would thus increase to 35%. The risks are higher, that goes without sayinghe said.

However, Federal Reserve Governor Tiff Macklem and his economists are not alone in the dock.

Disruptions in supply chains extended by politics Zero COVID In China, the full reopening of the economy, wage increases due to labor shortages and pressure on energy and food costs caused by the conflict in Ukraine are all helping to keep prices at record highs.

Economic Zone: Interview with Senator and Economist Clément Gignac

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