Even though incoming data suggests Canada’s economy may be weakening, Bank of Canada Governor Tiff Macklem concedes that core inflation still isn’t slowing down, affirming the central bank’s commitment to further interest rate hikes.
After dedicating every breath to persuading Canadians that inflation is temporary and they can rest assured rates will remain “low for a long time,” Macklem sheepishly admitted what every consumer has known for a long, long time: the central bank was “overly optimistic” disastrously wrong in its assessment of how high and permanent inflation was going to be. “Canadians experienced these pressures first-hand when trying to book a campsite or reserve a table at their favourite restaurant,” said Macklem in a series of prepared remarks he delivered in Halifax on Thursday.
Inflation soared to an annual rate of 8.1% in June, before slightly receding amid a decline in fuel prices. However, Macklem pointed to persistent core inflation as the main reason behind the bank’s commitment to continue raising rates. “All signs point to an economy that is clearly in excess demand,” he said. “The clear implication is that further rate increases are warranted.” The Bank of Canada has raised the overnight rate from 0.25% in March to a current 3.25%, with another hike likely due come October 26. “Simply put, there is more to be done.”
Macklem recognized that indicators are pointing to a slowdown in economic activity and higher interest rates have caused Canada’s housing market to cool from record-highs, but it will likely take more time before the full effects of rising interest rates become apparent.
Information for this briefing was found via the Bank of Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
