Opinion: Bank of Canada should pause interest rate hikes, leave borrowing costs unchanged

is still above the bank’s 1-to-3-per-cent target band, and that it is not known when inflation will return to the midpoint 2-per-cent operational goal. They will also point to the surprising resilience of the economy after previous increasesHowever, the case for leaving interest rates unchanged is stronger and more compelling.

If one tracks how price pressures have evolved by category of goods and services over the past three years, it becomes apparent that the Bank of Canada was right when it said in 2021 that the inflation shock was primarily due to a disruption of global supply chains that was temporarily pushing up prices.

Meanwhile, the financial pressure on households has been intensifying. The Financial Consumer Agency of Canada reported that the share of Canadians who have no problems keeping up with their financial commitments fell from 57 per cent at the end of 2021 to 39 per cent at the end of 2022. The share of households that spend more than they earn climbed to 55 per cent for mortgage holders and 59 per cent for renters.

A key concern flagged by the Bank of Canada is the tightness of labour markets, which could generate wage growth that would prevent inflation from falling back toward the midpoint target. But there is no evidence that wage growth has been the driver of inflation.

Source: News Formal (newsformal.com)

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