The Bank of Canada is again raising the key rate by half a point, raising it from 1 to 1.5% in the hope of regaining control of inflation which continues to climb.
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“Inflation measured by the consumer price index (CPI) reached 6.8% in April, a rate that far exceeds the Bank’s forecast – and is expected to rise further in the short term before starting to decline. “Worries the institution, stressing that” the risk that high inflation takes root has increased.
The war in Ukraine, COVID-19-related lockdowns in China, and continued disruptions in global supply chains form a dangerous cocktail that is boosting inflation in all sectors. Uncertainty is growing, the outlook is darkening, global markets are volatile.
Meanwhile, the Canadian economy is going full steam ahead with GDP growing 3.1% in the first quarter of 2022, widespread labor shortages and rising wages increasingly spreading to more sectors. A serious brake application is therefore necessary to prevent the locomotive from racing. This is what the Bank is trying to do by raising rates further.
In the circumstances, it already warns that this new increase will not be the last:
“The Board of Directors still believes that interest rates will have to increase further,” she said. The Governing Council is ready to act with greater force if necessary to honor its commitment to achieve the inflation target of 2%.”
