Food, rent and mortgage interest costs continue to add to inflationary pressures: Economist
Signs of headline inflation slowing down in Canada should be enough for the country’s central bank to hold off on any further rate hikes, one economist says.
Canada’s headline inflation came down in June at 2.8 per cent year-over-year, according to data released by Statistics Canada on Tuesday. However, core medium inflation, which excludes volatile items such as gasoline and food prices, remained unchanged at 3.9 per cent on a yearly basis, the figures showed.
Since headline inflation is cooling, while core inflation remains sticky, Pedro Antunes, chief economist at the Conference Board of Canada, believes that the Bank of Canada will not raise rates any further -- but will keep them elevated in order for the full effects to be felt throughout the economy.
“We don’t need to press the brakes any higher, and I think the bank will wait and see now going forward,” he told BNN Bloomberg in a TV interview on Tuesday.
Antunes explained that while today's data proves the bank has been successful in fighting headline inflation, things like elevated food prices and mortgage interest costs, are still too high for them to ease monetary policy measures.
“One of the big contributors is the mortgage interest cost portion — that’s another piece as we see interest rates stabilizing we should hopefully see that moving down as well,” he noted.
Unfortunately, food prices are at risk of rising even further, he cautioned.
Groceries rose 9.1 per cent year-over-year, slightly faster than in May, the data showed.
An uncontrollable factor that could lift food costs even further is the Russia-Ukraine conflict, Antunes said. Certain measures that Russia is likely to make will put additional pressure on the global food chain supply, he warned.
“I just worry that we’re going to end up with another hiccup here,” Antunes said.
All factors considered, the BoC will continue to communicate to the general public that they will get inflation under control.
“I think they’re pushing hard on the message that they need to keep interest rates high to convince folks they will succeed in getting inflation down to that two per cent rate,” he said.
Balancing public perception and bringing down core inflation will be a challenge for the bank, PIMCO’s managing director and North American economist Tiffany Wilding, told BNN Bloomberg on Tuesday.
“This is a really tough balancing act,” she said.
Today’s data was good for inflation expectation but still revealed that sticker categories aren’t making as much progress as needed, Wilding added.
“We agree that a rate hike is on the table for September,” she said.
Between now and then, the BoC will have several more data points to make a better informed decision, Wilding noted.
“We’re kind of leaning towards they probably don’t hike, but ultimately it’s going to be a close call,” she said.