Consumer price index prompts economists to predict more rate hikes

With the latest inflation data showing no sign of easing significantly, economists expect the Bank of Canada to continue its reign of aggressive interest rate hikes, and some predict a “technical recession.” techniques” in the first half of 2023.

Data released by Statistics Canada on Wednesday showed that the consumer price index (CPI) increased by 6.9% year-on-year in September, although economists had previously expected an increase of only 6.9%. 6.7%.

In an interview with BNN Bloomberg on Tuesday, Jean-Francois Perrault, chief economist at Scotiabank, said “there is a limit to how much [the Canadian economy] bearable.”

“You’ve got a pretty terrible situation in Europe. Clearly, China is experiencing a very significant downturn – perhaps so significant that it decided not to release economic data for a short while yesterday. And we got the US where things were slowing down and the Feds indicated they wanted to raise rates a little bit more and that would lead to a recession there. “

Perrault said that these economic pressure points make it increasingly difficult for Canada to weather recession fears, but he also pointed out that there is still a lot of resilience in different sectors of the economy. economic.

“You can think of this as the kind of economy that pauses for a couple of quarters,” he said. “The Bank of Canada is trying to design to cool down the economy. It is trying to slow down inflation. So this ongoing slowdown is consistent with that and will hopefully be helpful from an inflation management perspective as we look at 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 as we approach 2023.


Bank of Montreal chief economist Douglas Porter said in a note to clients on Wednesday that inflation has not eased as much as predicted last month, “even as the cost of gasoline has fallen by a big step.” .”

“Cost inflation remains extremely persistent and fixed at above 5%.”

He added that the weak Canadian dollar and the possibility of a 75 basis point increase from the US Federal Reserve at its next meeting pave the way for a 75 basis point increase.


Leslie Preston, a senior economist and managing director at TD Bank, said in a statement Wednesday that policy rate hikes are starting to have an impact on the economy. Inflation data underscores the need for a sharp 50 basis point increase next week for the BoC overnight rate, she said.

“We expect the bank to be closer to a pause in rate hikes, when it hits 4% later this year,” Preston said.


Derek Holt, vice president and head of capital markets economics at Scotiabank, predicts the Bank of Canada will raise its policy rate by 75 points next week, as he said in a note to investors. on Wednesday. He also mentioned that he was in favor of a 75 basis point increase ahead of the release of the CPI figures.

“[Overnight index swap] Valuations for next week’s BoC decision have shifted from pre-data pricing around 60 bps to more than 75 bps as three-quarters of percentage point rate hikes are now fully priced in,” Holt said. speak.


Benjamin Tal, deputy chief economist at CIBC, said in an email to BNN Bloomberg on Wednesday that he expects the central bank to raise 75 basis points.

Karyne Charbonneau, an economist at CIBC, said in a note to investors on Wednesday that the central bank continues to have “work to do” in effectively fighting inflation.

“As a result, we believe the Bank will need to increase 75 bps next week instead of the 50 bps we previously predicted. The Bank could then be left with a final 25 bps in December if the growth numbers support it,” noted Charbonneau.

With Daniel Johnson’s files


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