Like the Bank of Canada did it on Wednesday, the US Federal Reserve will announce a 50 basis point hike in its key rate in May. This is what most economists are expecting, and they are forecasting other marked increases like this in 2022. The Bank of Canada could also add increases of 50 points as early as early June.
The inflation rate hit its highest since 1981 in the United States in March, at 8.5%. Fuel oil prices are up 70% over 12 months, gasoline prices, 48%. Food price growth is 8.8%, the largest increase since May 1981.
It is quite possible that we are approaching the peak of inflation, since the rise in gasoline prices really accelerated in April 2021. And therefore, the difference between the prices of 12 months and current prices could shrink somewhat.
However, inflationary pressures remain strong. The war in Ukraine, which is fueling inflation at breakneck speed, continues. Problems in supply chains persist as Shanghai lockdown adds a little more pressure. And, consumer demand is still very high.
Larger salary increases?
In addition, rising inflation and expectations of high inflation are leading workers to demand larger wage increases. Employers, who have to contend with a major labor shortage in the United States as well, tend to raise their prices in order to pay the wage increases.
Wage increases are fueling demand and consumption a little more, which is driving up prices… and the wheel is turning even faster. In the United States, economists namewage-price spiral“,”text”:”wage-price spiral”}}”>wage-price spiral this phenomenon which largely contributed to the inflationary shock of the 1970s, wrote the New York Times Wednesday.
A former US Federal Reserve economist, Roberto Perli, currently head of global policy at investment bank Piper Sandley, puts the risk of recession at 90% in the United States. This is what he says in a research note sent to his clients, reported by the Globe and Mail.
Le Wall Street Journal wrote on April 10 that the economists surveyed by the financial daily assess the risk of recession at 28% within 12 months, against 18% in January.
In catch-up mode
One might wonder why central banks waited so long before raising interest rates. It is perhaps easy to say, seen from here, when we could not have predicted at the beginning of the year that a war in Ukraine was going to be started at the end of February. We were no doubt trying not to believe Vladimir Putin’s threats and the warnings of the American government. The result is that central banks today seem to be in catch-up mode.
Just six months ago, the Bank of Canada denied that the unemployment rate was a good indicator of inflationary pressures
National Bank economist Stéfane Marion told Economy zone Wednesday evening.Macklem announced it.”,”text”:”But the data proves to us that she may have been complacent. Hence the need to catch up, as Mr. Macklem announced.”}}”>However, the data proves to us that she may have been complacent. Hence the need for some catching up, as Mr. Macklem announced.
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The unemployment rate in Canada is currently at 5.3%, which is lower than the rate of inflation, at 5.7%. It is only the third time in 50 years that unemployment has been lower than inflation.
Inflation is too high, and bringing inflation down will be our most important task
told the Wall Street Journal Lael Brainard, who will soon become the Vice Chairman of the US Federal Reserve.
<q data-attributes="{"lang":{"value":"fr","label":"Français"},"value":{"html":"C’est une reprise non traditionnelle, ajoute-t-elle. Tout a été compliqué –as if the pandemic wasn’t complex enough– by the invasion of Russia.”,”text”:”It’s a non-traditional recovery, she adds. Everything was complicated – as if the pandemic were not complex enough – by the invasion of Russia.”}}”>It’s a non-traditional cover, she adds. Everything was complicated – as if the pandemic were not complex enough – by the invasion of Russia. And the strict confinement of Shanghai citizens to try to quell the outbreak of COVID-19 has the potential to prolong some of the constraints we have seen in supply chains
.
act quickly
There is a need to normalize monetary policy reasonably quickly
, said Tiff Macklem, Wednesday morning. Not only is the bank accelerating its rate hike, but it is also announcing that the government bonds it bought during the pandemic – hundreds of billions of dollars – and which are coming to maturity will no longer be replaced.
The Bank of Canada now expects inflation to reach almost 6% on average during the first half of 2022. It will take until 2024 to return to the target rate of 2%. It should be added, says the central bank, that there are also risks that expectations of high inflation will become entrenched.
Moreover, firms tend to convert higher input costs into higher prices for consumers. Consumer spending is firming up, the recovery in exports and business investment continues, and the rise in immigration should contribute to an increase in the economy’s production capacity.
The bank forecasts growth for the Canadian economy of 4.25% in 2022 and 3.25% in 2023, a somewhat vigorous forecast, according to Stéfane Marion, given the global economic slowdown that could be announced next year. next. According to him, there is about a 30% risk of recession in Canada.