Inflation expected to exceed 8% next week: Bank of Canada

OTTAWA –

The Bank of Canada expects inflation to pass “just above” 8 percent as soon as next week, when June data is released, and remain in that range for several months, Governor Tiff Macklem told a business group in a transcript of a webcast released late in Friday.

Macklem, who spoke to the Canadian Federation of Independent Business the day after Wednesday’s shock 100 basis point rate hike, also urged small business owners to avoid building the current rate of rate increases into their contracts.

“Inflation is seven high. It will probably exceed just over eight percent. We have the next CPI next week. “We know oil prices were very high in June, so I wouldn’t be surprised if they went up,” Macklem said.

Inflation in Canada was 7.7% in May, the highest since January 1983. Analysts polled by Reuters expected June inflation to reach 8.3%, the highest since 1982.

Macklem reiterated that the Bank of Canada now expects inflation to average around 8% for the next few months, before falling to around 3% by the end of 2023 and to a target of 2% in 2024.

Canadian Deputy Prime Minister Chrystia Freeland, who is also finance minister, said Saturday the federal government is responding by “not adding fuel to the flames” through its budget and by tackling some of the drivers of inflation, as well as labor and housing policies. .

“We are confident that the Bank of Canada has the tools and the expertise to do this job,” she told reporters in a telephone briefing, noting the bank’s independent role.

Macklem also made it clear that the bank was very concerned about the wage-price spiral, where businesses raise wages to keep workers and then pass the higher costs on to households, who then demand higher wages to to offset inflation.

“You see this creates a self-perpetuating cycle,” he said, adding that the central bank would take the necessary actions to bring inflation back to target.

“So as a business, don’t plan for the current rate of inflation to stay. Do not build this into longer term contracts. Do not build this into wage contracts. It will take some time, but you can be sure that inflation will come down.”

The CFIB said it was unable to play the scheduled recording of Thursday’s webcast due to a technical issue. The business group released its transcript late Friday.

(Reporting by Julie Gordon in Ottawa; Editing by Nick McPhee and Diane Craft)