The Bank of Canada should no longer raise its key rate

According to one of the leading Canadian economists, signs of a slowdown in overall inflation in Canada should be enough for the country’s central bank to refrain from further rate hikes.

Headline inflation in Canada eased to 2.8% year over year in June, according to data released by Statistics Canada on Tuesday. However, core average inflation, which excludes volatile items such as gas and food prices, remained flat at 3.9%, calculations showed.

As headline inflation declines and core inflation remains robust, Pedro Antunes, chief economist at the Conference Board of Canada, believes that the Bank of Canada will no longer raise rates, but will keep them high so that the effect of the hike cycle is fully absorbed by economy.

“We don’t need to hit the brakes harder and I think the bank will wait and see what happens next,” he told Bloomberg in a recent interview.

Antunes explained that while today’s data proves the Bank’s success in fighting headline inflation, things like higher food prices and mortgage interest rates are still too high for monetary easing.

“One of the biggest drivers of inflation is the cost of interest on mortgages – however, we note the stabilization of interest rates and hope that they will also begin to decline,” he said.

Unfortunately, there is a risk of a further rise in food prices, he warned.

The data showed that food rose 9.1% year on year, slightly more than in May.

According to Antunes, an uncontrollable factor that could push food prices even further is Russia’s war of aggression against Ukraine. He warned that certain measures Russia is taking will put additional pressure on the global food supply chain.

“I’m just worried that we might have another glitch here,” Antunes said.

All factors considered, the Bank of Canada will continue to inform the public that inflation will be under control.

“I think they are pushing the message that you need to keep interest rates high enough to convince people that the Bank of Canada will be able to bring inflation down to the target of two percent,” said the chief economist of the Conference Board of Canada.