Home Economy Bank of Canada Sees Chance of Hefty Rate Hike

Bank of Canada Sees Chance of Hefty Rate Hike

Bank of Canada Sees Chance of Hefty Rate Hike
Photo Collected From: Reuters

The Bank of Canada’s latest quarterly surveys of business and consumer expectations summarize growing doubt about the central Bank’s capacity to put a lid on inflation, raising the odds of a bigger-than-usual interest-rate increase in July 2022. The article contains Bank of Canada Sees Chance of Hefty Rate Hike.

The Bank was conducted before Russia invaded Ukraine, so it wasn’t a helpful guide to what company leaders think about the world in which we live now. Participants answered many questions, but the only ones that matter now are those related to inflation, which surged to 7.7 percent in May, as measured by year-over-year increases in Statistics Canada’s consumer price index. 

Elevated numbers of companies continue to struggle with supply bottlenecks and labor shortages, suggesting the presence of excess demand in the economy, which is inherently inflationary. According to Bank of Montreal economist Shelly Kaushik, almost 80 percent of respondents said they thought inflation would be above three percent in a year, the most ever. Nearly half of companies said wage increases would remain above pre-pandemic levels for the next 12 months, partly because workers insist on being compensated for a higher cost of living. Most businesses said they expect inflation will remain “substantially” above two percent for at least a couple of years, and a quarter of respondents said they saw inflation staying that high for longer.

The Bank of Canada’s regional offices conduct 100 interviews per quarter from a rotating roster of businesses. However, policymakers trust the results, and the report ranks as one of the most important inputs into interest-rate decisions.

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