Bank of Canada readies for its 1st rate decision of 2024. Here’s what to know
As the Bank of Canada prepares to make its first interest rate decision of the year on Wednesday, economists say headwinds in the “last mile” of the inflation fight will serve as a final hurdle before rate cuts can begin.
Inflation has cooled significantly from highs of 8.1 per cent in the summer of 2022, thanks in part to the Bank of Canada’s rapid run-up in its benchmark interest rate. But while the first year of the central bank’s rate tightening cycle saw inflation drop more than five percentage points, the rate of annual price hikes has remained largely steady in the range of three to four per cent over the past half year.
Inflation ticked up to 3.4 per cent in December 2023, according to Statistics Canada, as gas prices fell by less than they did in the same month a year earlier.
While the mild acceleration was expected by forecasters, BMO chief economist Doug Porter flagged a stubbornness in core inflation holding around the mid-three per cent market as “unsettling news” for the Bank of Canada’s efforts to restore annual price pressures to the two per cent target.
“The last mile (or kilometre) of the inflation fight may prove to be the most challenging,” he wrote in a note to clients last week.
James Orlando, director of economics at TD Bank, tells Global News that inflation eased more quickly in the beginning of the tightening cycle because of the reasons price pressures shot up in the first place: supply chain bottlenecks.
The current inflationary period was primarily fuelled at first by global supply chains failing to meet a surge of demand in the pandemic recovery, intensified by Russia’s invasion of Ukraine driving up prices on oil and food. Orlando explains that as these pressures unwound, inflation dropped
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