The rise in grocery prices and the prospect of a strong jobs report has sparked public outrage, indicating that the Bank of Canada may not have finished hiking interest rates.
In a speech to the Manitoba Chambers of Commerce, the Bank of Canada’s senior deputy governor, Carolyn Rogers, acknowledged that inflation was still too high and that there may be higher interest rates in the future.
Although the bank has forecast that inflation will hit three per cent this year and be on target at two per cent by 2024, Rogers suggested that these goals were optimistic if interest rates don’t rise further.
Fighting inflation in the face of a still-strong jobs market where wages are outpacing productivity and on the prospect that energy prices could rise again, Rogers repeated that the bank’s decision to pause its key interest rate this week depends on how the economy unfolds.
However, she acknowledged that fighting the rising price of groceries only added to interest costs for Canadian borrowers, creating an unpalatable choice between two painful options.
Canadian prices of many essential consumer staples have continued to rise at rates above 10 per cent a year, far above wage increases, which remain below inflation.
The macroeconomic impact of higher interest rates may be the only solution to the problem, as grocery store executives and their suppliers deny responsibility for rising prices.
Rogers noted that productivity has declined in the Canadian economy, even though employers are anxious to fill jobs in a still-strong economy.
While higher prices in the US and Europe could affect the Canadian economy and add to inflation, Rogers repeatedly stated that the central bank did not target the value of the Canadian dollar.
A falling loonie would be analyzed for its effect and “factored into our policy decisions,” she said. “But the floating exchange rate is and will continue to be a key part of our monetary policy.”
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