Bank of Canada mulled rate hike in face of stubborn inflation
When the governing council of the Bank of Canada met at policy-setting meetings beginning Aug. 31 to consider pausing or increasing the central bank’s key overnight interest rate, they concluded that earlier rate hikes were beginning have an effect on the economy.
“Members agreed that data since their last decision had shown more clearly that demand was slowing, and excess demand was diminishing as monetary policy gained traction,” said a summary of those deliberations released Sept. 20.
“In particular, demand had levelled out in several industries in the services sector, suggesting that the impact of higher interest rates had broadened.”
However, the central bankers continued to view the lack of progress on tackling underlying inflation as a significant concern, and they considered raising the key overnight rate yet again before ultimately deciding to leave it at five per cent at the Sept. 6 rate setting.
“Members weighed the possibility that high core inflation could persist even as evidence accumulated that restrictive monetary policy was slowing demand,” according to the summary of deliberations, which highlighted wage growth as a key factor in reducing downward momentum in core inflation.
The central bankers said annual wage increases — with most measures of wage growth remaining in a four to five per cent range annually — were “inconsistent with achieving price stability” in the absence of a large increase in productivity.
They also noted that international oil prices were higher than had been assumed in July, representing a potential source of inflationary pressures, and that global oil prices hadn’t come down despite slowing growth in China.
The central bankers said they expected oil and gas prices to drive
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