With the latest inflation data showing no signs of a substantial slowdown, economists expect the Bank of Canada to continue its reign of aggressive rate hikes, and some predict a “technical recession” in the first half of 2023.
Data released by Statistics Canada on Wednesday showed the consumer price index (CPI) rose 6.9% year-on-year in September, after economists had previously expected a rise of just 6.7%.
In an interview with BNN Bloomberg on Tuesday, Jean-Francois Perrault, chief economist at Scotiabank, said “there is a limit to how [the Canadian economy] can resist.”
“You have the pretty horrible situation in Europe. Clearly, China is going through a very significant slowdown – perhaps so significant that it decided yesterday not to release economic data for a while. And we had the United States where things are slowing down and the Fed has indicated that they want to raise interest rates a little bit more and that will lead to a recession there.
Perrault said these economic pressure points are making it increasingly difficult for Canada to withstand fears of recession, but he also pointed out that there is still a healthy dose of resilience in various sectors of the economy.
“You can think of it as a kind of economy taking a break for a few quarters,” he said. “The Bank of Canada is trying to organize a cooling of the economy. He is trying to slow down inflation. So this slowdown that’s happening is consistent with that and hopefully helpful from an inflation management perspective as we look to inflation over the next year and a half.
Here’s what other economists are saying about recent inflation data and what to expect from the Bank of Canada heading into 2023.
BANK OF MONTREAL
Bank of Montreal chief economist Douglas Porter said in a note to clients on Wednesday that inflation had not come down as much as expected last month, “even though gasoline prices have come down a lot “.
“Underlying inflation remains extremely persistent and sticky at over 5%.”
He added that a weak Canadian dollar and a likely 75 basis point hike from the US Federal Reserve at its next meeting pave the way for a 75 basis point hike.
TORONTO-DOMINION BANK
Leslie Preston, senior economist and managing director of TD Bank, said in a statement on Wednesday that increases in the key rate were starting to have an impact on the economy. Inflation data, she said, underscores the need for a sharp 50 basis point hike next week in the Bank of Canada’s overnight rate.
“We expect the bank to approach a pause in rate hikes, once they reach 4% by the end of the year,” Preston said.
THE BANK OF NOVA SCOTIA
Derek Holt, vice president and head of financial markets economics at Scotiabank, expects the Bank of Canada to raise its key rate another 75 points next week, as he said in a note to investors on Wednesday. . He also mentioned that he had backed a 75 basis point hike ahead of the CPI numbers.
“[Overnight index swap] pricing for next week’s BoC decision has moved from pre-data pricing of around 60bps to over 75bps now as a three quarter percentage point rate hike is now fully assessed,” Holt said.
CANADIAN IMPERIAL BANK OF COMMERCE
Benjamin Tal, CIBC’s deputy chief economist, said in an email to BNN Bloomberg on Wednesday that he expected a 75 basis point hike from the central bank.
CIBC economist Karyne Charbonneau said in a note to investors on Wednesday that the central bank continues to have “work to do” in its fight to effectively fight inflation.
“As such, we now believe the Bank will have to opt for a 75 basis point hike next week rather than the 50 basis points we had previously anticipated. The Bank could then end up with a final 25 basis points of base in December if the growth numbers support it,” Charbonneau noted.
With files by Daniel Johnson
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