Demand created from a record influx of immigrants could be one factor keeping inflation higher for longer than anticipated, some economists say, though Bank of Canada governor Tiff Macklem doesn’t appear overly worried about it.
Sticky inflation prompted the Bank of Canada on July 12 to raise interest rates by 25 basis points to five per cent — the highest level since 2001. Though the inflation rate has fallen off its peak of 8.1 per cent last summer to 3.4 per cent in May, prices of more than half the goods in the consumer price index, such as meat, bread, coffee and rent, continue to rise, Macklem said in a press conference following the decision.
The central bank now expects inflation to reach its two per cent target by the middle of 2025, instead of the end of next year as predicted in April.
But even as prices for key goods go up, the economy is proving more resilient than expected and demand momentum and consumption growth has been “surprisingly strong,” the bank said in a statement, pushing it to once again hike rates last week.
An increase in immigration could be one complicating factor keeping inflation higher for longer and stoking demand, Bank of Nova Scotia economist Rebekah Young said.
“There is more risk that inflation may be sticky in months and quarters ahead, versus it coming down faster than we thought and newcomers are a part of that story,” she said. “They are certainly adding to what could be keeping (Macklem) up at night.”
Canada welcomed more than one million immigrants in the past year as the federal government sought to address high job vacancies and labour shortages. Young said the country has traditionally used population growth through immigration as a means to increase workers and enhance
Read more on financialpost.com