Bank of Canada prepared to raise rates further if inflation progress stalls

globalnews.ca:

The Bank of Canada’s policymakers said they are still prepared to raise their benchmark interest rate further even as they hiked rates to their highest level in 22 years earlier this month.

The central bank on Wednesday released notes of the deliberations surrounding its interest rate decision on July 12, which saw the policy rate rise 25 basis points to 5.0 per cent.

The Bank of Canada’s July hike followed another quarter-percentage-point increase to the policy rate in June. Many economists at that time predicted a single rate hike would not have been sufficient to satisfy the central bank’s concerns that the decline in inflation could stall.

Debate ensued among observers and economists following the July 12 decision over whether the latest rate hike was really needed as inflation fell into the central bank’s one-to-three per cent target range.

The central bank governing council’s consensus in July was that leaving the key policy rate unchanged at 4.75 per cent would risk stalling the progress it had made in tamping down price increases, which has so far seen annual inflation cool to a low of 2.8 per cent from highs of 8.1 per cent last year.

But the “underlying inflation pressures” are proving “more persistent than expected,” policymakers expressed earlier this month. At the time of the July rate decision, more than half of the items in Statistics Canada’s consumer price index basket were seeing prices rise more than five per cent annually, the deliberations note.

Policymakers also flagged that “downward momentum in headline inflation was waning” and measures of core inflation, which strip out more volatile measures such as prices for gas and food, were showing signs of holding around 3.5 to 4.0 per cent.

Inflation