ICYMI: What economists are saying about Bank of Canada's steep rate increase — via financialpost inflation rateincrease economy
Governor Tiff Macklem and his deputies raised the policy rate by a full percentage point, bringing the interest rate up from 1.5 per cent to 2.5 per cent. It’s an aggressive move by the central bank, and the largest since 1998, but the governing council likely felt assured in their decision after the United States Federal Reserve Bank made a similarly vigorous hike of 75 basis points last month.
Inflation has hit records not seen in four decades, climbing to 7.7 per cent in May, thanks to higher prices in almost every category Statistics Canada tracks. Many economists predicted price pressures could be peaking, however the central bank’s rate increase landed just after the U.S. releasedThis advertisement has not loaded yet, but your article continues below.
“What I’d emphasize in this regard is that I just can’t accept their depiction of today’s move as being about how ‘the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today.’ That implies they think they are getting ahead of inflation risk when in reality they are far behind in the fight against inflation.
“We’re so past any relevant point at which today’s actions can be described as front-loading the response, when a more accurate depiction portrays the BoC in perpetual catch-up mode to inflationary pressures. As a consequence to having misread inflationary impulses last year, Canadians now face heightened economic anxiety because rates are going up by leaps and bounds when earlier and more gradual rate hikes could have nipped some of the inflation risk in the bud and avoided today’s big changes.
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