BoC to Hike Rates in March
February 17, 2022 | Posted by: Keith Leighton
BoC to Hike Rates in March
Canadian Inflation Rose 5.1% in January
StatsCanada today reported that consumer price inflation rose to 5.1% from year-ago levels in January, compared to 4.8% in December. This was higher than expected and undoubtedly, this puts additional pressure on the Bank of Canada (BoC) to hike the overnight policy rate target in early March when it meets again, despite the disappointing jobs data last month. Even excluding gasoline, the CPI rose 4.3% last month over the previous year.
Shelter costs rose 6.2% year over year in January 2022, the fastest pace since February 1990. Higher prices for new homes contribute to higher costs associated with the upkeep of a property or the homeowners’ replacement cost. Higher home prices also tend to raise other owned accommodation expenses.
Renters also saw a rise in prices, as the rented accommodation index increased 3.2% year over year, contributing to the higher shelter prices Canadians faced in January.
Another highly visible component of rising inflation was the surge in food prices. Shoppers paid more for groceries, as food prices from stores rose faster in January 2022 (+6.5%) than in December 2021 (+5.7%).
Bottom Line
Inflation has now exceeded the Bank of Canada’s 1% to 3% target band for 10 consecutive months. Other central banks in the US, UK and EU have already begun to hike overnight rates from their effective lower bound of 25 basis points.
The recent trucker protests and border blockades have further disrupted the fragile auto supply chain. Wages in Canada rose 2.4% year over year, so Canadian households, on average, are seeing their purchasing power diminish.
Markets are pricing in as many as seven increases in borrowing costs over the next 12 months. While the Bank runs the risk of tightening too aggressively, there is little doubt that the emergency monetary easing has run its course.
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