The Bank of Canada’s deputy governor, Paul Beaudry, gave a speech to the Greater Victoria Chamber of Commerce, stating that recent economic data suggested an increase in the risk of “sticky inflation.” This was the driving force behind the central bank’s decision to raise interest rates by a quarter of a percentage point, bringing it to 4.75 per cent. Beaudry explained that economic data released since April had “tipped the balance,” as there is an accumulation of evidence showing that inflation appears to be more persistent than initially thought. The Bank of Canada had paused its rate-hiking cycle in January, after raising interest rates eight consecutive times. However, with stronger growth, a tight labor market, and an uptick in inflation in April, Beaudry believes interest rates were not high enough. The Canadian economy has continued to surprise forecasters, as real gross domestic product grew at an annualized rate of 3.1 per cent in the first quarter. Beaudry further notes that consumer spending and buyers are returning to the housing market, and labor market conditions have remained resilient.
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