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Inflation ‘keeps us awake at night,’ says Bank of Canada deputy minister

Carolyn Rogers does not rule out a 75 basis point hike in July

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The Bank of Canada’s senior deputy governor said inflation was keeping central bankers ‘up at night’ and did not rule out a three-quarter point hike after data showed the CPI hit a high of nearly 40 years.

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Carolyn Rogers reacted to the 7.7% gain in the inflation rate hours after Statistics Canada released the data on Wednesday, calling it an “undesirable number” but not a “totally unexpected number” during a Globe and Mail event.

Canadian consumer prices rose in May at rates not seen since January 1983, beating economists’ forecasts and increasing pressure on the central bank to follow the US Federal Reserve with a whopping 75 basis point hike .

The inflation rate is higher than the 6.8% posted in April and well above the Bank of Canada’s own forecast that it will average 5.8% this quarter.

“Inflation is too high; it hurts Canadians,” Rogers said at the Toronto conference. “It keeps us awake at night and we won’t have a quiet rest until we get it back on target…That’s why we’re raising interest rates and, as we say , we’re increasing them quite aggressively.”

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Rogers echoed other bank executives, such as Deputy Governor Paul Beaudry, who suggested interest rates may need to rise above the neutral rate — an estimated range of around 2% and 3% — to neither boost or hamper economic growth.

When asked if that meant a 75 basis point hike in the bank’s next decision on July 13, Rogers didn’t rule out the possibility.

“We will make the July decision when we get to July,” she said. “We have always been clear, the economy is in excess demand, inflation is too high, rates need to rise.”

Other economists, such as Royce Mendes, managing director and head of macroeconomic strategy for Desjardins Group, expect the central bank to trigger a “giant” hike of 75 basis points. The central bank should have made such a move earlier this month to bring prices under control, Mendes said.

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Rogers pointed to runaway inflation as a risk and said the most important task right now is to get inflation back to target (between 2 and 3%) with “as few unintended consequences as possible.” .

“We see a way to do it. Our view is that we can take some of the excess demand out of the economy and bring it back into balance,” she said.

The hikes that took the bank’s benchmark rate from 0.25% at the start of this year to 1.5% are already having an effect, she said.

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“We are seeing a moderation in the housing market… We know that the sectors of the economy that are most sensitive to changes in interest rates are where Canadians borrow, that’s how monetary policy works, it does increase borrowing costs. The demand economy is dependent on borrowing, you will see a rapid reaction…”

Rogers reiterated that while the central bank is watching this part of the economy very closely, monetary policy will focus on controlling inflation which affects all Canadians through the cost of groceries, gas and other items.

The bank also believes global inflation will start to decline as the lingering effects of the pandemic wane, it said.

Additional Reuters reports

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