The Bank of Canada held its key overnight lending rate unchanged at 0.25% on Wednesday, once again suggesting that a rate increase may come sometime in the New Year.
In its accompanying statement, the Bank also said it continues to expect inflation to remain elevated in the first half of 2022 and not ease back towards 2% until the second half of the year. Any possible rate hike will not likely come until the middle quarters of 2022 – sometime between April and September, the Bank said, unchanged from its previous stance.
Back in November, Statistics Canada reported the Canadian inflation rate near a 20-year high, with the consumer price index up 4.7% in October from a year earlier, compared with a year-over-year gain of 4.4% in September. At that time, some analysts suggested an interest rate hike might come in April, and potentially even sooner if inflation continued to run hot.
According to the Bank, CPI inflation is elevated and the impact of global supply constraints is feeding through to a broader range of goods prices. The effects of these constraints on prices will likely take some time to work their way through, given existing supply backlogs, it added. However, gasoline prices - which had been a major factor pushing up CPI inflation - have recently declined, it said.
Meanwhile, core measures of inflation are little changed since September, the Bank said, adding it is closely watching inflation expectations and labour costs to ensure that the forces pushing up prices ‘do not become embedded in ongoing inflation.’
Although the Omicron variant has injected some uncertainty into the economic picture, the Bank said the global economy is continuing to recover from the effects of the COVID-19 pandemic. Economic growth in the US has accelerated, led by consumption, while growth in some other regions is moderating after a strong third quarter. Inflation has increased further in many countries, reflecting strong demand for goods amid ongoing supply disruptions, it added.
Canada’s economy grew by about 5½ percent in the third quarter, led by a rebound in consumption, particularly services, as restrictions were further eased and higher vaccination rates improved confidence, the Bank said.Click here to see more...