Persistent inflation risk convinced the Bank of Canada to raise rates

2023-06-09 02:41:33

Recent economic data suggests that the risk of persistent inflation has increased, prompting the central bank to decide on Wednesday to raise interest rates, a deputy governor of the Bank of Canada said Thursday.

In the text of a speech delivered Thursday before the Victoria Chamber of Commerce, Paul Beaudry returned to the central bank’s decision to end its pause in interest rate hikes. The bank’s key rate is now at 4.75%, its highest level since 2001.

Beaudry said economic data released since April had “tipped the balance in favor of a hike” for the central bank.

“We now have an accumulation of data — across a range of economic indicators — that suggests excess demand at home is more persistent than we thought, raising the risk that the decline in inflation will stall,” said Paul Beaudry.

“That is why we have decided to raise the key rate. »

“We recognize that this tightening cycle has been challenging [pour bon nombre de Canadiens]. But the other option — doing nothing to control inflation — would have had far worse consequences, especially for people living on low or fixed incomes,” he said.

Surprising indicators

After raising interest rates eight times in a row, the Bank of Canada announced in January that it was suspending its rate hike cycle. She seemed cautiously optimistic that this would be enough to stifle inflation, but central bank governor Tiff Macklem had stressed that the central bank would be ready to raise rates further if needed.

Since then, the Canadian economy has continued to surprise forecasters who expected a slowdown.

Last week, Statistics Canada reported that the country’s real gross domestic product grew at an annualized rate of 3.1% in the first quarter.

Beaudry said the rapid rise in consumer spending has taken the central bank by surprise as buyers appear to be returning to the housing market.

Progress on inflation also eased slightly in April, with the annual rate hitting 4.4%. Meanwhile, the labor market has remained remarkably resilient, with an unemployment rate of 5.0%.

“In light of recent dynamics in core inflation and continued excess demand, we agreed that there is now a greater risk that headline inflation will remain stuck well above the 2% target. “, indicated Mr. Beaudry.

With The duty