By Steve Scherer and David Ljunggren
OTTAWA (Reuters) – Unexpectedly strong household spending in the first quarter and persistently high core inflation are the central bank’s top official It said on Thursday it would be suspended for four months.
Deputy Governor Paul Beaudry also warned consumers that future interest rates could remain higher than Canadians’ during the COVID- 15 Pandemic.
The Bank of Canada (BoC) raised its overnight interest rate Wednesday to 10 a yearly high of 4.74 percent, with markets and analysts predicting another increase next month after the policy statement declared that monetary policy restrictions were not adequate. The Bank of Canada has set an inflation target of 2%.
In his first speech since the Bank of Canada raised interest rates, Beaudry singled out unexpectedly strong household spending, a rebound in the housing market as he addressed business executives in Victoria, British Columbia A tight labor market and sticky core inflation are the main factors behind the latest moves.
. “We agreed that the likelihood that headline inflation could get stuck well above the 2% target has increased.”
In the speech, Beaudry There was no indication of the Bank of Canada’s thoughts on its next meeting in July. The money market believes that the possibility of raising interest rates again in July is 50%, and has fully priced in the possibility of further tightening in September.
CAD exchange rate is 0.1 1.3356 to USD or 74.87 Cents up %.
Borrowing costs raised eight times since March 3356 to 10 – 4-year high . 50% – Fastest tightening cycle in banking history.
In April, annual inflation accelerated to 4.4% for the first time in months. Gross domestic product rose 3.1% in the first quarter, compared with the Bank of Canada’s forecast of 2.3%, and the economy was expected to grow 0.2% in April.
Beaudry pored over the stats and predicted headline inflation would slow in May and to 3% this summer, but expressed concern about core inflation, which excludes the recent drop in energy prices .
The core inflation gauge “appears to have lost its downward momentum”, he
Contrary to expectations, demand for services rose sharply in the first quarter, as did demand for goods, especially are rate-sensitive items like furniture and appliances, he said.
But he did say that structural factors in the economy that have kept interest rates low are changing. For example, Canadians who save more toward retirement don’t save as much when they stop working.
There is a greater risk of future interest rate rises, so “it is important to think ahead,” Beaudry said, “to prepare more fully for the possibility that we will enter a new era of structurally higher interest rates.” Prepare”.