Bank of Canada to suspend rate hike due to lower inflation
2023.02.21 13:52
Bank of Canada to suspend rate hike due to lower inflation
By Kristina Sobol
Budrigannews.com – Data from Tuesday showed that Canada’s annual inflation rate fell to 5.9% in January, which was lower than expected. This should allow the Bank of Canada to keep interest rates the same at its next meeting while it lets previous rate hikes take effect.
Inflation was expected to fall to 6.1% from 6.3% in December, according to analysts. After a decrease of 0.6% in December, Statistics Canada reported that the consumer price index increased by 0.5 percent month over month. This was lower than the 0.7% gain that analysts had anticipated.
Statscan cited a base effect—a comparison to the strong result from the previous year—that ought to last through June. Prices surged in January 2022 during supply chain disruptions and tensions between Russia and Ukraine, reaching a peak of 8.1% in June.
Andrew Kelvin, chief Canada strategist at TD Securities, stated that the inflation figure “allows (the Bank of Canada) to stay on hold in March, despite the fact that the labor market was extraordinarily hot in the month of January.”
In January, the Bank of Canada became the first major central bank to say it would hold off on further increases as long as prices eased in line with its forecast, reaching a 15-year high of 4.5 percent.
Then, earlier this month, data revealed that Canada’s economy exceeded expectations by adding a net 150,000 jobs in January.
Money markets predicted a one hundred percent likelihood of a rate increase this year prior to the release of the inflation figures. They now see a chance of roughly 80%.
By the middle of 2023, the bank anticipates that inflation will fall to around 3%, returning to its target of 2% the following year. The next inflation report will be released following the March 8 policy-setting meeting of the central bank.
The Canadian dollar was exchanging 0.4% lower at 1.35 per U.S. dollar, or 74.07 U.S. pennies.
Prices increased by 4.9% in January, excluding food and energy, compared to 5.3% in December.
CPI-median and CPI-trim, two of the central bank’s most important indicators of underlying inflation, averaged 5.1% in January, down from 5.3% in December.
According to Doug Porter, chief economist at BMO Capital Markets, the Bank of Canada is “somewhat more comfort in their decision to go on pause at least temporarily” as a result of the January inflation figures.
He stated, “A nice antidote to some of those high-side surprises will definitely prove to be a low-side inflation read.”
According to the data, prices are falling more quickly in Canada than in the United States, where annual inflation increased by 6.4 percent in January. NYSE: Goldman Sachs likewise Bank of America stated that they anticipate the United States Federal Reserve raising interest rates three times more this year.
On Friday, Bank of Canada Agent Lead representative Paul Beaudry said its approach setting way can wander from national banks in different nations for however long expansion is at last carried down to target.
Adding to the ideal base impact, cell administrations fell 7.9% every year in January in the wake of expanding 2.5% in December, and purchasers paid 6.2% something else for traveler vehicles contrasted and 7.2% in December.
Food prices, on the other hand, increased 10.4% in January, slightly faster than the 10.1% increase in December. Mortgage interest costs, on the other hand, increased 21.2% annually in January, the largest increase since 1982.
In a separate development, retail sales increased by 0.5 percent in December, in line with forecasts, and Statscan’s flash estimate for January projects a 0.7 percent increase.
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