BoC Governor warns that “painfully high” inflation will not ease this year

While Canadians keep suffering from a growing cost of living, the central bank Governor Tiff Macklem warns that the national inflation rate is expected to remain “painfully high” for the rest of 2022.

The latest report by Statistics Canada shows that the annual inflation rate was up from 7.7% in May to 8.1% in June. This is the largest annual hike since January 1983.

In a recent interview with CTV News, Macklem noted that the inflation rate, unfortunately, will not go down below 7% for the rest of this year.”

“It will be still painfully high,” – he said.

The main driver of June’s inflation growth were higher gasoline prices. According to Macklem, gas prices have reduced since then, so he believes July inflation data will show a slight decline.

Nevertheless, Macklem said demand is outpacing the economy’s ability to produce the goods people need, and it will keep affecting inflationary pressures.

Responding to a higher than expected inflation, on July 13 the BoC raised its key lending rate by 1% to 2.5%, marking the largest rate increase since August 1998.

The next rate meeting is scheduled for September 7, following August 16 StatCan July inflation report.

Macklem says although reducing inflation back to 2% is paramount, he’s expecting raising the policy rate again “pretty quickly.”

“We are intentionally front-loading our rate response, as we want to get ahead of this,” – he added.