The big question: How many more BoC rate hikes are ahead?
Macklem said fuel costs would probably start to impact other types of inflation if they remain elevated. “The longer energy prices remain high, the more likely it is these costs will spill over to consumer prices more broadly,” he said.
But the consumer price index (CPI) is still well below its 2022 level, when it ballooned to a 39-year high and prompted a flurry of big BoC rate hikes. The current environment, Reitzes said, is a “different world” to that era – mainly because of the weak growth outlook.
That means a steady stream of rate hikes by the central bank in the coming months remains unlikely for now.
“The likelihood of that resuming or something like that seems pretty low. We don’t have the level of stimulus globally that we had in the economy at that time,” he said. “You don’t have governments around the world pouring money into the economy and the post-pandemic surge in demand.
“We don’t have that type of event coming at this point. It’s more energy-price-driven. And we’ll see how the war in the Middle East goes. It’s just not the same backdrop – and the Bank just wants to make sure that they don’t let inflation take root again and have to deal with broader price pressures and then have to raise rates more aggressively later.”
