Toronto – May 2, 2022 – The Bank of Canada is using every available tool to stymie run away inflation that has hit the Consumer Price Index (CPI) on goods and services in the Canadian economy at nearly 6 percent.
With strong demand, increased employment, and wage growth at pre-pandemic levels, the Bank forecasts the Canadian economy to grow by 4.25 percent this year, 3.25 percent next year, and 2.25 percent in 2024. However, high inflation continues to absorb these gains, hence the Bank’s move to tighten its lending policy.
As supply challenges disrupt the global economy, fueled by war in Europe and a COVID-19 resurgence in China, businesses are finding it difficult to meet demand and are passing higher input costs onto consumers through price increases.
This has set off the Bank’s Quantitative Tightening Policy, which will see a steady increase to its lending rate in an effort to cool excess demand and balance supply over time. The Bank’s overnight interest rate now stands at 1 percent after an increase of 50 basis points, with more hikes to come.
If the policy works according to plan, this should bring inflation to 2.5 percent by the second half of 2023 and to the 2 percent target by 2024. As the policy takes time to move through the system, Canadians can expect to grapple with high inflation throughout much of this year and a return to normal by the second half of next year.