Canada’s hotter than expected inflation read in April could force the Bank of Canada’s hand to hike rates yet again, one prominent economist says.
Statistics Canada revealed a 4.4 per cent rise in annual inflation in April, giving pause to economists and market experts who were looking for a decline instead.
This data could be enough to test the patience of Canada’s central bank and prompt a hike, or at the very least, strike a more hawkish tone at next month’s interest rate decision meeting, David Rosenberg, founder and president of Rosenberg Research, told BNN Bloomberg in an interview on Tuesday.
“I think this number today could tilt the balance. Before the number, the markets were pricing in only 20 per cent of a Bank of Canada rate hike at the next meeting on June 7. We’re up to almost 40 per cent priced in right now,” he said.
Rosenberg warned that while the overall trend is showing a cool down in inflation, the declaration might simply not be happening fast enough.
“We know that the Bank of Canada, like most central banks, are not going to be comfortable until we’re making a lot of headway towards that two per cent holy grail,” he said.
It could just be that the central bank will face more challenges in the future should they allow a prolonged inflation fight, he warned.
“The longer that the levels of inflation, even as they come down, the longer they stay elevated, the greater the risk that they’ll get embedded more permanently in inflation expectations – and that’s the last thing you want to happen,” Rosenberg said.
The call for a possible interest rate hike at June’s meeting is also being echoed by CIBC economist Avery Shenfeld.
“The risk of a return to rate hikes at the next (monetary policy report) release can’t be ruled out, as staying on hold is now very dependent on seeing a slowdown in the labour market,” Shenfeld said in a note published Tuesday.
At the very least, the Bank of Canada will maintain its hold on interest rates for the next few decisions in this environment, another financial expert reasoned.
While getting inflation under control is imperative, future rate hikes might be unlikely within the foreseeable future, Ed Devlin, founder of Devlin Capital, told BNN Bloomberg.
“I find it highly improbable they'll change policy,” he said.
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