Bank of Canada Hikes

Dan North | March 02, 2022

As expected the Bank of Canada (BoC) raised its overnight policy interest rate from 0.25% to 0.5% to fend off inflation. The BoC started tapering it’s QE program in April of 2021, a year ahead of the Fed.

In the accompanying statement the BoC acknowledged risks to inflation but also a strong economy.

  • “CPI inflation is currently at 5.1%, as expected in January, and remains well above the Bank’s target range. Price increases have become more pervasive, and measures of core inflation have all risen. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities. All told, inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards…. Economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed.”
The January Consumer Price Index is currently running at a 30 year high of 5.1%. Shelter prices contributed the most, gaining 6.2% y/y.
CPI Inflation vs. BoC Overnight Rate
Gasoline prices rose 4.8% in January and are up a stunning 31.7% y/y
Housing prices have cooled slightly but are still running at a blistering 17% y/y pace nationwide, with Hamilton hitting 26% and Halifax hitting 32%.
CPI Inflation vs. Housing Prices
While wages are growing 2.4% y/y, inflation has taken a huge bite out of them, sending the real rate down -2.8%.
Western Canada Select (WCS) crude oil rose 9% yesterday. Since the recent low last November it has risen 93% from $46/bbl to $89/bbl. Over the same period West Texas Intermediate (WTI) has risen 62%, from $66/bbl to $107/bbl. (WCS trades at a discount to WTI).
Western Canada Select
Expect a series of hikes this year.
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