Greg Bonnell

Reporter

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Consumer price pressures are going to get worse before they get better – and households may be facing higher borrowing costs sooner rather than later.

That’s the Bank of Canada’s latest take on soaring inflation and the future path of interest rates -- outlined Wednesday in its Monetary Policy Report.

In updating its economic outlook, the central bank is tipping its hat to what the market and Bay Street economists have been warning for weeks now: inflation is proving stickier than thought and higher borrowing costs are closer than you think.

The Bank of Canada is putting the “middle quarters of 2022” in play for conditions to be met for a possible rate hike; that timeframe spans April through September.

That’s a considerable shift from its previous language suggesting the second half of next year. And it fits better with the street’s call.

Just last week, Scotiabank economist Derek Holt told BNN Bloomberg he expects eight rate hikes from the Bank of Canada before the end of 2023, with the first coming in July. And bets are increasing in the market that a hike could come as early as April.

And when it comes to those higher prices Canadians are paying for a wide range of goods, the bank says they’ll climb even higher before the year is out.

In September, inflation hit 4.4 per cent – the highest reading since early 2003. The Monetary Policy Report shows the central bank expects inflation will hit 4.8 percent over the final months of this year.

You can blame supply chain disruptions and higher energy costs for that hit to the pocketbook.

And while the bank thinks the supply chain bottlenecks will peak before the year is out, it does have inflation running hot into next year before easing to near two per cent by late 2022.

“This is an incredibly difficult position to be in; they're really between a rock and a hard place,” said Karl Schamotta, chief market strategist at Cambridge Global Payments, in an interview.

“This is really dangerous, of course, because there is the possibility that they wind up choking off the recovery here -- that they wind up tightening global financial conditions, and the economy actually slows and that is you know, the worst nightmare that I think any central banker faces right now.”

 In the meantime, those disruptions and labour market constraints will take some wind out of the sails of the Canadian economy. The bank is shaved its GDP forecast for this year to 5.1 per cent, down from its previous call of six per cent.