The Bank of Canada expects inflation to go “a little over” 8 per cent, as soon as next week when June’s data is released, and stay in that range for a few more months, Governor Tiff Macklem told a business group in a webcast transcript released late Friday.
Macklem, who spoke to the Canadian Federation of Independent Business the day after Wednesday’s shock 100-basis-point interest rate hike, also urged small business owners to avoid building the current pace of price increases into their contracts.
“Inflation is high sevens. It’s probably going to go a little over eight (8 per cent). We have the next CPI next week. We know oil prices were very high in June, so I wouldn’t be surprised to see it move up,” Macklem said.
Canadian inflation was 7.7 per cent in May, the highest since January 1983. Analysts surveyed by Reuters expect June inflation to hit 8.3 per cent, which would be the highest since 1982. The data will be released on Wednesday at 8:30 a.m. ET (1230 GMT).
Macklem reiterated the Bank of Canada now expects inflation to average around 8 per cent for the next few months, then fall to around 3 per cent by the end of 2023 and to the 2 per cent target in 2024.
Canadian Deputy Prime Minister Chrystia Freeland, who also serves as finance minister, on Saturday said the federal government was responding by “not pouring fuel on 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 clear the bank is very concerned about a wage-price spiral, where businesses raise wages to keep workers and then pass the higher costs on to households, who then want higher wages to compensate for inflation.
“You can see this creates a self-perpetuating cycle,” he said, adding the central bank will take the action needed to get inflation back on target.
“So as a business, don’t plan on the current rate of inflation staying. Don’t build that into longer-term contracts. Don’t build that into wage contracts. It is going to take some time, but you can be confident that inflation will come down.”
The CFIB said it could not release its planned recording of Thursday’s webcast due to a technical glitch. The business group published its transcript late on Friday.