(OTTAWA) Economists are forecasting an increase in the consumer price index for the past month, which would be a reversal of the situation after the decline of the last 12 months.
In June, the inflation rate was 2.8%, within the Bank of Canada’s target range, a first since March 2021.
But this victory could be short-lived. Price pressures suggest that it will still take time before the inflation rate returns to the 2% target.
“This is going to be a hard reality check for everyone, including the Bank of Canada. We have passed the easy phase. It’s time to roll up our sleeves,” said Douglas Porter, chief economist at Bank of Montreal (BMO).
Inflation also rose in the United States in July, from 3% to 3.2%.
Porter said lower gas prices have contributed to lower inflation over the past year, but if prices start to rise again, it could create further inflationary pressure.
A rise in inflation in July will not take the Bank of Canada by surprise.
Its most recent forecast indicated that it expects the inflation rate to hover around 3% over the next few months before receding to 2% by mid-2025.
These projections had prompted the central bank to raise its key rate by a quarter of a point last month.
It now stands at 5%, a peak since 2001.
Porter doesn’t expect the Bank of Canada to do it again in September.
While economic growth and the labor market have met expectations since the start of the year, signs of a slowdown are on the horizon.
For example, the unemployment rate is on the rise. Over a three-month period, it went from 5% to 5.5%.
Mr. Porter said this should prompt the Bank of Canada to hold back on raising its key interest rate, especially as economists anticipate a further rise in the unemployment rate.
“It’s a tough decision to make to keep raising interest rates when unemployment is rising,” he said. It would not be wise to raise interest rates with the movement we have seen in the job market over the past few months. »
While many economists share Porter’s view, CIBC’s managing director and senior economist, Andrew Grantham, does not.
“One of the reasons we think the Bank of Canada would announce another interest rate hike is its tendency to push too hard,” he said. It prefers to bring inflation back to its target sooner rather than later. »
The Bank of Canada is expected to announce its decision on the matter on September 6.
