Economist John Clinkard says above target inflation will continue to keep pressure on interest rates.
From a global perspective, important price measures are signaling that inflationary pressures have moderated over the past few months. First, in 28 OECD countries, the latest inflation rate has slowed to +9.4% year over year after hitting a high of +10.9% in October.
After an extended hiatus, the impact of a post-pandemic rise in commodity prices, led by oil, caused headline inflation to hit 38-year highs of +9.1% in the U.S. and +8.2% in Canada, in June, 2022. Given that inflation in both countries has risen by about the same amount, it is not surprising that the U.S. Federal Reserve Board and the Bank of Canada have lifted their policy interest rates in tandem by 4.2 percentage points in attempts to return inflation to its +2% target.
Regarding inflation, the governor of the Bank of Canada, Tiff Macklem, recently stated in his remarks to the House of Commons Standing Committee on Finance that “inflation in Canada has eased but remains high” and, as the job numbers indicate, the Canadian economy “remains overheated and clearly in excess demand”. The Governor acknowledged that interest rates take time to work through the economy.
John Clinkard has over 35 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
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