This is the fifth straight hike in interest rates from the bank, which has been trying to bring annual inflation back to within a 1% to 3% range for months. A threshold crossed in April 2021.
Inflation, which has since reached a high not seen in almost 40 years, was 7.6% in July, down slightly from 8.1% in June.
Despite this slight decline, which was attributed to falling gas prices, there is still a long way to go, the Bank of Canada warns.
Further increases are to be expected
% en juillet”,”text”:”Abstraction faite de l’essence, l’inflation s’est accrue et les données indiquent que les pressions sur les prix se sont généralisées davantage, particulièrement du côté des services. Les mesures de l’inflation fondamentale de la Banque ont continué d’augmenter pour s’établir entre 5 et 5,5% en juillet”}}”>Excluding gas, inflation has picked up and data suggests that price pressures have become more widespread, particularly on the services side. Bank’s core inflation readings continued to rise to 5%-5.5% in Julydetermines the institution.
Surveys show that near-term inflation expectations remain elevated. And the longer they stay, the more inflation is likely to take root.
For all these reasons, the Bank’s Board of Directors believes that the policy rate
still needs to increase.
” The impact of COVID-19 outbreaks, ongoing supply disruptions and the war in Ukraine continue to dampen growth and push up prices. »
Taking this further increase into account, the base rate has risen by 3 percentage points since the beginning of the year. This is a big brake to calm the overheated economy by increasing the cost of borrowing.
For consumers, this renewed increase in key interest rates will lead to higher interest rates and thus higher mortgage interest rates. Just like car loans, credit cards or lines of credit.
According to Equifax Canada, Canadian consumer debt increased 8.2% in the second quarter of 2022 compared to the same quarter last year.
Rapid interest rate hikes are also not good news for companies, which are also grappling with borrowing and high levels of debt while service and commodity prices remain high.
economy still overheated
The Canadian economy remains in
Excess demand and labor markets remain tightdetermines the central bank.
In the second quarter of 2022, gross domestic product grew by 3.3%.
: la consommation a progressé d’environ 9,5% et les investissements des entreprises, de près de 12%”,”text”:”Bien que ce chiffre soit quelque peu inférieur à celui qu’avait projeté la Banque, les indicateurs de la demande intérieure ont été très forts: la consommation a progressé d’environ 9,5% et les investissements des entreprises, de près de 12%”}}”>Although that number is slightly lower than the bank had forecast, domestic demand indicators have been very strong, with consumption up about 9.5% and business investment up almost 12%.writes the management of the Bank of Canada.
Despite the hesitant demand for gradual increases in key interest rates, the institute still expects the economy to weaken in the second half of the year.
as global demand slows and monetary tightening here in Canada begins to bring demand back to levels more in line with supply.