The Bank of Canada It maintained its key policy rate at 0.25% on January 26, but is ready to start raising interest rates.
The central bank decided that “the slack in the economy is now essentially absorbed,” and its governing council decided to “end its extraordinary commitment to keep the policy rate at an effective lower limit.
“The Governing Council expects to raise interest rates at the right time and pace, based on the bank’s commitment to reach the 2% inflation target,” according to the Bank of Canada’s interest rate announcement. I am saying.
In its January Monetary Policy Report (MPR), BoC released a new set of quarterly forecasts that predicts economic growth will be slightly slower over the next three years and inflation will continue slightly compared to October’s forecasts. did. This shows that strong growth in the Canadian economy will resume in the second quarter.
Despite the fact that inflation is expected to remain close to 5 percent in the first half of 2022 due to rising prices for consumer durables, energy and food, long-term inflation expectations remain “ 2”. Percent inflation target. “
The central bank predicts that inflation will ease by about 3% by the end of 2022 as supply chains normalize, rising energy prices and rising food costs disappear.
BoC analyzed food price inflation. This is the highest level in 10 years, up almost 6% year-on-year. As an example, rising meat prices were pointed out. As an example, beef rose 12 percent, bacon rose 19 percent, and chicken rose 6 percent.
“These food price increases will probably continue. As a result, the Bank of Canada expects food price inflation to exceed the historical average of 2022.”
According to BoC, domestic prices for agricultural products are following global prices, but have risen sharply due to bad weather such as droughts in many parts of the world, supply chain disruptions and rising energy costs for distribution. is doing.
According to the MPR, “assuming oil prices are flat, rising gasoline prices should also weaken in the coming quarters,” said West Texas Intermediate prices at around $ 75 a barrel per barrel during the forecast period. Is assumed to be.
December annual inflation rate 4.8%Inflation rate has exceeded the upper limit of the year-on-year change target range of 3% for the Bank of Canada’s consumer price index for the ninth straight month.
Labor market tightens
The MPR said the labor market had recovered to pre-pandemic levels by the end of 2021 and wage growth was rising amid high vacancy. December unemployment rate 5.9% The central bank said it was only 0.3 percentage points higher than in February 2020.
BoC believes that Omicron’s economic impact will be limited to the first quarter and that “expected short-term regulation should limit its impact on the labor market.” According to the Central Bank, Omicron is now focused on hiring in difficult, albeit temporary areas.
BoC forecasts an economic growth rate of 4.6% in 2021, which is 0.5 percentage points lower than the October forecast. In 2022, BoC forecasts growth of 4.0% and growth of 3.5% in 2023.