Long predicted due to rampant inflation at home, the Bank of Canada’s key interest rate hike will come soon.
At the very least, that’s what Bank of Canada Governor Tiff Macklem hinted at in a speech to the Canadian Chamber of Commerce on Wednesday.
“We have a responsibility to bring inflation back to a low, stable and predictable rate so that Canadians can make projects and investments with confidence,” argued Mr. Macklem, arguing that inflation, which reached a rate of 4.8% at home in December (5.1% in Quebec), is very far above the 2% target.
For example, the Bank of Canada still intends to raise its key interest rate, which has been at a low of 0.25% since the beginning of the pandemic in March 2020.
“As the pandemic eases, the economic situation should normalize everywhere, and thus alleviate the pressure on the prices of goods globally. Inflation should then fall relatively quickly in the second half of 2022, to around 3% by the end of the year,” Mr Macklem argued.
On the other hand, if the Canadian economy has, on balance, recovered well from the pandemic, companies will have to do more to ensure their sustainability.
The Governor explained that, overall, the rebound in employment was stronger in Canada than in the United States following the first lockdown, but that American employees saw a greater increase in their hours worked.
“We can therefore say that the recovery of the labour factor has been quite similar in both countries. It is on the side of productivity that the difference lies. Productivity growth was significantly stronger in the United States, so that with a recovery in the labour factor roughly equivalent to that of Canada, our southern neighbors recorded a stronger increase in production,” stressed Mr. Macklem.
According to him, American companies have been much more quick to invest in their human capital and technology during the pandemic than those in Canada.
Canadian companies will therefore have to catch up, which is not impossible.
“According to our most recent business outlook survey, 62% of respondents said they expect to increase their spending on machinery and equipment in the coming year compared to last year, unprecedented since we began conducting this survey in 1999,” the Governor stressed.