Canada’s headline inflation rate has risen for the second consecutive month, reaching four per cent in August, primarily driven by increased food and gasoline prices. This unexpected surge has surpassed economists’ forecasts and is predicted to sustain high interest rates until at least spring of next year, according to a recent report from Statistics Canada on Tuesday.
Sal Guatieri, Director and Senior Economist of BMO Capital Markets, expressed concerns over the persistent inflation rate. He highlighted that the consumer price index (CPI) median has once again exceeded four per cent. The Bank of Canada has previously shown concern about the slow pace of decline in core measures of inflation, and this recent increase is likely to intensify these worries.
Rising prices across the services sector are also adding pressure on Canadian consumers, Guatieri pointed out. This includes the escalating cost of renting. Despite these inflationary pressures, Guatieri does not foresee the Bank of Canada increasing its benchmark interest rate in the coming month. He argues that such a move could further slow down an economy that he describes as already significantly decelerated.
While Guatieri suggests that interest rates may not need to rise further, he anticipates they will remain elevated for an extended period. He does not predict any potential cuts in interest rates by the Bank of Canada until next spring at the earliest. This forecast presents a scenario where Canadians might have to grapple with high interest rates for a longer period than initially anticipated.
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