Bank of Canada says to expect further rate hikes as demand continue to remain high

In a speech yesterday, the Governor of the Bank of Canada, Tiff Macklem indicated that further interest rates are warranted to quell the near-term inflation expectations. While there are foreign forces that influence inflation, the domestic demand, driven by labour shortages, is still quite high.

The Bank of Canada continues to worry about inflation expectations becoming entrenched, which results in a self-fulfilling cycle of inflation that is harder to stop.

It’s interesting to note that the concern for demand is not driven by the average consumer but by employers. Affordability is actually a challenge to many Canadians as they are hit by higher cost of goods and higher interest payments on debt. A recent study done by MNP found that 46% of Canadians are $200 or less away from being unable to meet their financial obligations.

It’s a tough balancing act for the Bank of Canada as they juggle the long-term implications of interest rate hikes while attempting to reduce inflation.