Driven by supply chain bottlenecks and higher food, housing, and transport costs, inflation rose out of the Bank of Canada’s control range for the 6th month in a row, reports BNN Bloomberg. It’s the highest reading since February 2003.
Though Governor Tiff Macklem has been insistent that the spike will be short-lived, he acknowledged in early October that the high inflation rates could take longer to come back down. Traders in the overnight swaps market continue to bet against the Bank of Canada prediction that interest rates won’t go up until the 2nd half of 2022, the article continues, and analysts have stated that the central bank needs to acknowledge that those persistent pressures cause risk.
After the report was released, the Canadian dollar hit a session high but then pared back, while bonds had a modest rally. The Bank of Canada will release their policy decision on October 27th and though a rate change isn’t expected, Macklem is expected to reduce weekly purchases of government bonds from $2 billion to $1 billion. Meanwhile, traders are factoring at least 3 interest-rate hikes throughout 2022, which would bring the rate from 0.25 per cent to 1 per cent by the end of next year.