Posthaste: Economists read the tea leaves of Bank of Canada's July rate hike to decipher its next move
With the Bank of Canada on a communications hiatus this month, two economists have read the tea leaves in governor Tiff Macklem’s comments at the July interest rate hike to decipher the bank’s next move — and arrived at diverging conclusions.
Bay Street number crunchers Stephen Brown and Derek Holt in recent notes both cited Macklem’s July 12 statement that the bankwould “be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the two per cent inflation target.”
Based on those metrics, Brown at Capital Economics said the bank “can afford to wait” at its upcoming Sept. 6 decision. Scotiabank’s Holt, on the other hand, said the bank should hike again “until you have clarity that the inflation risk has been reduced.”
The Bank of Canada’s benchmark interest rate now stands at a 22-year high of five per cent as the battle against inflation continues. Markets are predicting a 25 per cent chance of a hike in September and a 60 per cent chance of an increase by the end of the year, according to data from Bloomberg.
Both economists tapped the data to guide their positions.
Brown, Capital Economics’ deputy chief economist for North America, said the Bank of Canada will have to wait until the release of its October consumer and business surveys to figure out where inflation expectations are headed. Fresh insight on corporate pricing also won’t be available until then, though he noted a recent paper from the bank’s research department argued that a rise in mark-ups resulted from a collapse in costs and that, more recently, margins have been falling.
On wages, Brown said there are signs the labour market is loosening as the unemployment
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