The Bank of Canada’s recent decision to raise interest rates was based on the unexpectedly strong consumer spending, which is showing no signs of slowing down according to the latest retail data. The central bank’s governing council reviewed economic data and concluded that the previous benchmark rate was not restrictive enough to reach its target of two percent inflation. The council expressed surprise at the resilience of consumer spending, as Canadians continue to spend on automobiles, furnishings, and other household goods. The council also noted three consecutive months of growth in housing activity and prices, indicating the economy’s resilience to higher interest rates.
The governing council attributed the strength in consumer spending to several factors. Firstly, tight monetary policy might not be impacting households as much due to built-up savings, which could delay the full absorption of higher rates into the economy. Additionally, pent-up demand for travel and other experiences following the pandemic is contributing to inflation in the services sector.
Despite signs of a strong economy, the governing council acknowledged the potential easing of the tight labor market and persistent elevated core inflation. However, after reviewing the evidence, the council ultimately decided to raise rates by 25 basis points in June, with future decisions dependent on forthcoming economic data.
Economists are already predicting another 25-basis-point rate hike next month, supported by the latest retail data showing continued strength in consumer spending. Canadian retail sales in April surpassed initial estimates, and the flash estimate for May indicates further growth. Economists at Desjardins and BMO expect another rate hike in July, although they anticipate a slowdown in consumer spending in the second half of the year due to higher interest rates and elevated inflation.
The Bank of Canada will consider additional economic data, including May inflation numbers and the June Labor Force Survey, before making further monetary policy decisions. The next decision is scheduled for July 12.
In conclusion, the Bank of Canada’s decision to raise interest rates was influenced by robust consumer spending and positive economic indicators. Economists predict another rate hike in the coming months, but anticipate a slowdown in consumer spending as rates continue to rise.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
