Perhaps most people were a little smug about this week’s interest rates announcement, taking for granted that nothing was going to change because that’s the way it has been since January. Stability seemed inevitable.
Not so fast, said the Bank of Canada.
Surprising many, the Bank increased its overnight rate to 4.75 per cent, a bump of .25 per cent.
In its press release, the Bank of Canada said this: “Globally, consumer price inflation is coming down, largely reflecting lower energy prices compared to a year ago, but underlying inflation remains stubbornly high. While economic growth around the world is softening in the face of higher interest rates, major central banks are signalling that interest rates may have to rise further to restore price stability.”
Reactions were swift.
Economist Armine Yalnizyan of the Atkinson Fellow on the Future of Workers told the CBC: ”I don't know why you need more pain because their rates are only making things worse for the housing market, [and] that's where the biggest bite of everybody's income goes, whether you own or rent or are rich or poor.”
Another economist Royce Mendes, an economist with Desjardins, said that "it's unlikely they'll see enough progress towards restoring price stability before their next scheduled rate decision for this to be the final hike of the cycle. As a result, we continue to lean towards another 25-basis-point rate hike in July.”
The Bank explained further in its press release that “demand for services continued to rebound. In addition, spending on interest-sensitive goods increased and, more recently, housing market activity has picked up. The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour. Overall, excess demand in the economy looks to be more persistent than anticipated.”
What does it all mean?
That consumers will just have to wait and see…at least until July 12.