Bank of Canada rate hikes: Economists respond to new inflation data

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With the latest inflation data showing no sign of a substantial cooling, economists are forecasting that the Bank of Canada will continue its reign of aggressive rate hikes, with some predicting a “technical recession” during the first half of 2023.

Data released by Statistics Canada on Wednesday indicates that the consumer price index (CPI) rose 6.9% year-on-year in September, despite economists previously anticipating an increase of just 6.7%.

In an interview with BNN Bloomberg on Tuesday, Jean-Francois Perrault, chief economist at Scotiabank, said “there is a limit to the amount [the Canadian economy] can stand.”

“You have a pretty horrible situation in Europe. China is obviously going through a very significant slowdown, perhaps so significant that yesterday they decided not to release economic data for a while. And we have the US where things are slowing down and the feds have indicated that they want to raise interest rates a little bit more and that will lead to a recession there.”

Perrault said these economic pressure points make it increasingly difficult for Canada to resist fears of a recession, but also noted that there is still plenty of resilience in various sectors of the economy.

“You can think of it as the economy taking a breather for a few quarters,” he said. “The Bank of Canada is trying to engineer a cooling down of the economy. It is trying to curb inflation. So this slowdown that’s happening is consistent with that and hopefully useful from an inflation management perspective as we look at inflation over the next year and a half.”

Here’s what other economists are saying about recent inflation data and what to expect from the Bank of Canada as we head into 2023.

BANK OF MONTREAL

Bank of Montreal chief economist Douglas Porter said in a note to clients on Wednesday that inflation did not decline as much as anticipated last month, “even as gasoline costs eased considerably.”

“Core inflation remains extremely persistent and sticky above 5 percent.”

He added that a weak Canadian dollar and a likely 75 basis point hike from the US Federal Reserve at its next meeting paves the way for a 75 basis point hike.

BANK OF THE DOMAIN OF TORONTO

Leslie Preston, senior economist and CEO of TD Bank, said in a statement Wednesday that increases in the official interest rate are beginning to affect the economy. Inflation data, she said, emphasizes the need for a sharp 50 basis point hike next week in the BoC’s overnight rate.

“We expect the bank to be nearing a pause in rate hikes, once it hits 4 percent by the end of the year,” Preston said.

THE BANK OF NOVA SCOTIA

Derek Holt, vice president and head of capital markets economics at Scotiabank, anticipates the Bank of Canada will raise its policy rate by another 75 points next week, as he said in a note to investors on Wednesday. He also mentioned that he had been supporting a 75 basis point increase prior to the release of the CPI figures.

“[Overnight index swap] the price for next week’s BoC decision has moved from a pre-data price of around 60 bps to over 75 bps now as a three quarter percentage point rate increase is now fully priced Holt said.

CANADIAN IMPERIAL BANK OF COMMERCE

Benjamin Tal, the deputy chief economist at CIBC, said in an email to BNN Bloomberg on Wednesday that he predicts a 75 basis point hike by the central bank.

Karyne Charbonneau, an economist at CIBC, said in a note to investors on Wednesday that the central bank still has “work to do” in its fight to fight inflation effectively.

“As such, we now believe the Bank will need to go with a 75bp hike next week instead of the 50bp we previously anticipated. So the bank could take the last 25 bps in December if the growth numbers support it,” Charbonneau said.

With files from Daniel Johnson

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