Author: Danny Popescu | July 20, 2021
On Wednesday of last week, the Bank of Canada held its benchmark interest rate unchanged at ¼% as the country and world continue to emerge from the pandemic. The central bank does not expect to raise rates until the second half of 2022 at the earliest even as variants of concern continue to rise and virus containment is not universal.
The two themes discussed in detail at the press conference were increased confidence and continued attention. Governor, Tiff Macklem, mentioned falling case counts, progress on vaccinations and easing measures as evidence of recovery and an expectation for its continued momentum. Also, on-going scrutiny must be applied to the “dynamics of recovery and inflation”.
As expansion continues the Bank’s forecast for inflation has been increased. Bank of Canada economists believe that the rate will be above 3% for the balance of 2021, before nearing the Bank’s target of 2% during 2022, rise again in 2023 and then back to 2% in 2024. The belief is that pent-up demand is outstripping decreased supply temporarily. When supply rebounds inflation is expected to slow, and more typical price increases will return.
American consumer inflation rose to 5.4% in June, the highest year-over-year price increase for a month since 2008 during the financial crisis. Prices of goods and services fell during the early months of the pandemic, and June 2021 price spikes are being compared against the lows of June 2020. Despite the high rate of inflation, the Federal Reserve has also left rates unchanged.
What’s ahead for this week and beyond?
In Canada, it will be a light week for economic announcements with Aprils’ household credit, retail sales for May, and housing prices for June as the major announcements. In the U.S., housing starts, new house prices, existing home sales are scheduled for announcement. Also, the Purchasing Managers Indices from Markit for the month of July will be released. Globally, the light week for economic news continues. The major releases on the calendar are Japan’s inflation numbers and trade balance, and the Eurozone’s consumer confidence. On Thursday the European Central Bank will conduct a Monetary Policy Meeting that will discuss the effects of the pandemic, the recovery, the vaccination program and recent weather events on the region’s economy.
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