Odds are split on whether or not the Bank of Canada will hike rates for the first time since 2018 on Wednesday, with Omicron’s wrath seen potentially delaying the start of an aggressive tightening campaign geared at taming red-hot inflation.
Canada’s central bank will make its first major policy decision of 2022 at a time when consumer prices are rising at their fastest clip in 30 years and a harsh Omicron-fueled wave of coronavirus infections is just beginning to ebb.
Money markets see a roughly 65% chance the Bank will boost the overnight rate to 0.5% from the current record low 0.25%. Analysts surveyed by Reuters are less certain, with 77% seeing the central bank holding until at least March. [BOCWATCH]
“It’s a toss up really,” said Stephen Brown, senior Canada economist at Capital Economics. “I mean, (the BoC) was clear it was getting more concerned about inflation. But in terms of the type of hints that a central bank might normally send when it’s about to hike, we haven’t quite had them.”
Regardless of when the first increase comes, it is nearly certain to be the first of many this year. Brown sees four hikes in 2022, up to 1.25%. Money markets, meanwhile, are pricing in six to 1.75% to quell spiraling price gains on everything from housing to new appliances. [BOCWATCH]
Canada’s inflation rate hit 4.8% in December, the highest since September 1991 and the ninth month in a row above the Bank of Canada’s 1-3% control range. Inflation has not been this high for this long since the central bank set its 2% target in 1991.
The BoC renewed that target in December. Two days later, Governor Tiff Macklem said the slack in Canada’s economy was “substantially diminished” and the Bank was “not comfortable” with the current path of inflation.
That was a clear signal a tightening was imminent, said Derek Holt, head of capital markets economics at Scotiabank, further bolstered by new survey data showing inflation expectations continue to mount for consumers and businesses.
“At this point in the cycle, the risks to choosing the wrong fork in the road are exceptionally high,” said Holt, who expects multiple hikes this year to get the benchmark to 2%.
“Tighten too much and the curve inverts and the economy tanks. Don’t tighten enough and the economy eventually tanks on rising imbalances anyway given the dangerous combination of runaway inflation and house prices,” he said.
But the potential wrinkle is the Omicron variant. Canada has seen a huge surge in daily cases, outstripping testing capacity and forcing provinces to reimpose restrictions, which is set to weigh on January job data.
Still, for some Bank watchers the risk is overblown.
“Omicron is the obvious get out of jail free card for monetary policymakers,” said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.
“Near-term growth risks don’t offset the need to combat rising inflationary pressures, especially if they’re accompanied with downside risks to potential growth.”
The U.S. Federal Reserve also meets on Wednesday and investors expect it to signal a first rate hike in March.
(Reporting by Julie Gordon in Ottawa; Editing by Chizu Nomiyama)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
