Posthaste: This 'sticky' inflation could soon nudge the Bank of Canada to cut rates
The Bank of Canada has been trying for almost two years to tame inflation and we are still not able to say, battle won.
The uncertainty was highlighted in the central bank’s summary of deliberations for its October meeting released last week which revealed the governing council was split on whether more hikes were needed.
Some members thought it was “more likely than not” that more were needed to get inflation back to the target 2 per cent, while others thought the current 5 per cent policy rate would do the job as long as it was held there for long enough.
In his weekly note Friday, CIBC chief economist Avery Shenfeld says where interest rates go next comes down to two questions: will the economy remain fragile and will that bring inflation down?
The Bank appears to agree on sluggish growth, but is more divided on inflation.
Some of their concerns aren’t likely to persist, said Shenfeld. Oil prices, for instance, which spiked at the outbreak of the Hamas-Israel war, have since dropped back because of growing concerns over global demand. Brent crude has dropped below US$81 a barrel, after falling about 12 per cent over the past three weeks.
Wage increases are still higher, but the unemployment rate has been rising and job vacancies falling. “We know of no persuasive argument that would suggest that labour market slack will fail to show up in less robust pay hikes in the coming year,” said Shenfeld.
The central bank has also expressed concern about businesses seeking bigger and more frequent price increases, but Shenfeld argues that supply and demand will ultimately solve that price pressure.
“Weaker spending power as the job market softens should ensure that firms testing out larger price jumps will find their products
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