Breathe easy for now but economist says interest rate hikes coming
The Bank of Canada is set to make an interest rate announcement on Oct. 28
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OTTAWA — Canadians expecting higher borrowing costs next week can likely breathe a sigh of relief, but not for long.
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With the Bank of Canada set to announce its key interest rate next Wednesday, RSM Canada Chief Economist Tu Nguyen expects the rate to hold fast at 2.25% – but she says the central bank’s first rate hike since 2023 could come as early as December.
“The Bank of Canada has a little bit of room to wait, but they will be hiking very soon,” she told the Toronto Sun.
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StatCan data shows inflation on the rise
New data released Monday by Statistics Canada put the consumer price index (CPI) increasing 3.1% year over year in September, up from 3% in August – largely due to skyrocketing gasoline prices, which increased 27.8% from this time last year.
“Prices for energy accelerated in September, rising 19% year over year following a 15.4% gain in August,” the report read.
“Crude oil prices increased in September, reaching their highest level since May amid ongoing uncertainty about the wars in the Middle East, resulting in higher prices for gasoline and fuel oil.”
Taking gas prices out of the equation, September’s CPI increased by 2.2% after going up 2.4% in August – which government officials told the Sun on Monday is within the central bank’s target range.
When will interest rates increase?
Nguyen cited two main factors that are allowing the Bank of Canada to buy some time before a potential rate hike: a sputtering job market – Canada shed 68,000 jobs in September alone – and the aforementioned modest inflation once gas is stripped out.
The worry, however, is how long that lasts.
“The longer oil prices stay high … the inflationary impact of oil prices will spill over to the rest of the economy, and that is what’s worrying the central bank,” Nguyen said.
She said RSM’s forecasts suggest the central bank may start raising rates in December or January – no mega-hikes but in measured quarter-steps, possibly reaching 3.25% by the end of next year.
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