Despite a slight increase in Canada's inflation rate last month, the Bank of Canada remains determined to bring it down to 2%, with the possibility of another rate hike being considered in September. However, some economists believe that the positive overall figures may allow the Bank to pause on rate increases without a significant negative impact.
The Bank of Canada may shift its focus from the output gap to labor market indicators, such as unemployment and wages, in order to make inflation forecasts and guide its interest rate decisions, according to a report by CIBC economists. The report suggests that the labor market has become a more reliable indicator of excess demand or supply, and forecasts that if the job market outlook suggests it's not necessary, there may be no more rate hikes this year and rate cuts in early 2024.
A majority of Canadians believe that companies are using inflation as an excuse to overcharge them, with this view consistent across all income groups, according to a survey by Modus Research. The public's perception is influenced by reports of record profits for major corporations, causing growing economic anxiety among Canadians.
Canada's second-quarter GDP report is expected to show a significant slowdown in economic growth, potentially leading to a pause in interest rate hikes by the Bank of Canada despite recent high inflation data.
Canadian real estate and the economy are facing challenges, with slowing growth, high debt for millennials, increased fixed-rate mortgages, rising housing prices as an inflation risk, and low mortgage growth prompting concerns.
Rising gasoline prices are impacting inflation-weary Americans.
Canada's upcoming gross domestic product (GDP) reading is expected to be closely watched by the Bank of Canada (BoC) ahead of its September interest rate decision, with economists predicting a slowdown in the second quarter that could lead to a pause in interest rate hikes despite higher-than-expected inflation. The impact of recent wildfires and a dock workers strike is also expected to affect the data.
Canada is facing a deep crisis due to a housing crisis, rising consumer debt, and high interest rates, which are causing unaffordability and financial vulnerability for working people, while the government's plan to address these challenges remains unclear.
British Columbia Premier David Eby has urged the Bank of Canada to halt further interest rate hikes, stating that another increase could worsen inflation and harm struggling Canadians. Eby emphasized the impact of rising rates on housing and called for a targeted approach to fighting inflation, focusing on housing and infrastructure improvements.
Canada's economy unexpectedly contracted in the second quarter, raising concerns of a possible recession, as declines in housing investment and slower exports and household spending impacted growth. This is likely to lead the central bank to hold interest rates steady.
The profitability of energy and mining corporations in Canada has contributed to the inflation crisis by driving up prices, while other industries struggled to pass on increased costs to consumers, according to a report by Statistics Canada. The report highlights the concentrated nature of inflationary pressures and calls attention to the failure of policymakers to address the issue at its source, allowing energy corporations to profit while consumers bear the burden of rising costs.
Analysts have lowered their short-term forecasts for the Canadian dollar due to China's weakening economy and the widening yield gap between the US and Canada, but still project the currency to strengthen in the long term.
Canada added 40,000 jobs in August, surpassing economists' expectations, while the unemployment rate remained steady at 5.5%. This positive job growth suggests that the economy is not completely stalled, but the Bank of Canada is not expected to raise interest rates in the near future.
The Canadian dollar strengthened against the US dollar as stronger-than-expected jobs data raised the possibility of another interest rate hike by the Bank of Canada.
Bank of Canada Governor Tiff Macklem suggests that interest rates may not be high enough to bring inflation back down to target, indicating a hawkish approach after keeping borrowing costs at a 22-year high; Macklem highlights the need for more restrictive monetary policy to restore price stability and reduce inflation.
Treasury Secretary Janet Yellen believes the US economy is on a path that will prevent a recession while maintaining control over inflation, as polls show increasing optimism among Americans; she also expects a strong labor market despite slower economic growth.
The Federal Reserve is unlikely to panic over the recent surge in consumer prices, driven by a rise in fuel costs, as it considers further interest rate hikes, but if the rate hikes weaken the job market it could have negative consequences for consumers and President Biden ahead of the 2024 election.
The Canadian government is taking measures to address affordability challenges, including a cut in Goods and Services Tax, plans to boost the Competition Bureau's power, and an effort to lower food prices; however, economists believe these measures are unlikely to have an immediate impact on inflation or interest rates.
Economists predict that Canada's inflation rate is likely to increase to around four percent in August, mainly due to higher gasoline prices, reversing the previous progress made.
U.S. Treasury Secretary Janet Yellen believes the U.S. economy is on a path of sustainable growth and can withstand near-term risks, including a potential government shutdown, a United Auto Workers strike, student loan repayments, and spillovers from China's economic challenges. Yellen emphasized the importance of addressing these headwinds while maintaining a strong labor market and consumer spending. She also expressed the Biden administration's intention to de-risk supply chains that overly depend on China without seeking to decouple entirely from the Chinese economy.
The Trans Mountain oil pipeline expansion in Canada will redirect oil flows from U.S. Midwest and Gulf Coast refiners, potentially increasing prices for Midwest refineries and reducing the viability of Canadian crude re-exports from the Gulf Coast to China.
Treasury Secretary Janet Yellen states that U.S. growth needs to slow to its potential rate in order to bring inflation back to target levels, as the robust economy has been growing above potential since emerging from the COVID-19 pandemic. Yellen also expects China to use its fiscal and monetary policy space to avoid a major economic slowdown and minimize spillover effects on the U.S. economy.
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The U.S. economy is facing uncertainty and conflicting estimates, with regional Fed estimates showing significant divergence and risks of economic contraction or slow growth, while factors such as health insurance costs, wage growth, home prices, and rising gas and commodity prices could potentially cause inflation to rebound. Moreover, there are still risks and challenges ahead, making declarations of victory premature, according to Larry Summers.
Rent in Brampton, Canada, has increased at a rate three times faster than the national average, with one-bedroom units seeing a 29% increase, due to factors such as high immigration rates, a shortage of affordable housing, and the scrapping of rent control for newer units.
The Canadian dollar edged lower against the US dollar but still maintained a weekly gain due to higher oil prices and the possibility of more interest rate hikes by the Bank of Canada.
The Canadian economy has entered a long-delayed recession due to highly indebted households, overvalued home prices, and a slowdown in consumer spending, with the recession expected to last until the first quarter of 2024 and result in a 1.5% decline in GDP and an increase in the unemployment rate to 7.2%.
Policymakers in the US and Europe may find comfort in the slowdown of underlying measures of consumer-price growth, but rising crude oil prices could still fuel further inflation.
High inflation is leading to increased labor action in Canada as workers demand higher wages to combat the eroded purchasing power caused by rising costs of living, according to a report by RBC Economics. The report suggests that taming inflation is crucial to restoring peace in labor relations in the country.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
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Investors are growing concerned about the possibility of stagflation as oil prices rise and inflation remains stubbornly high, with some predicting a recession is on the horizon. The recent surge in oil prices has amplified the risk of stagflation, characterized by slow growth, high unemployment, and soaring inflation. While unemployment rates are relatively low, fears are growing that mounting layoffs could change this. Analysts warn that the surge in oil prices will likely keep inflation higher and negatively impact economic growth. The global economy's escape from stagflation is now being reconsidered.
Summary: Bank of Canada deputy governor Nicolas Vincent states that businesses in Canada are increasing their prices more often and by larger amounts, contributing to higher-than-expected inflation.
US job growth exceeds expectations, with 336,000 jobs added in September, increasing the likelihood of further rate hikes by the Federal Reserve, while in Canada, job gains of 63,800 in September and soaring wages also raise the chances of another rate hike.
The Canadian Dollar is easing off pressure as Crude Oil prices soften and US data dominates the market, with inflation figures expected to determine chart direction for the rest of the week.
Bank of Canada Governor Tiff Macklem has stated that aggressive interest-rate hikes are reducing demand and bringing down inflation, but policymakers remain concerned about the lack of downward momentum in inflation measures and are analyzing how a slowing economy will affect future price pressures.
The Bank of Canada faces a tough decision on whether to hike rates again in October, as the September inflation report is expected to be just as concerning as the recent U.S. data, and rising oil prices could further drive up inflation expectations.
Canadian businesses and consumers are feeling the impact of higher interest rates, resulting in reduced spending and subdued sales, although inflation expectations remain high, posing a challenge for the Bank of Canada's upcoming interest-rate decision.