No News is Good News?
As expected, the Bank of Canada held rates steady again. After the unprecedented increases of last year, the message has been clear: let’s measure the effect for a few months, and re-assess.
Our friends in Global Capital Markets recently shared data on rates and prices. Many countries have yet to see any decline in inflation: the UK, Japan, France, Germany. Canada has made far more progress than most countries with our aggressive approach to raising rates, so it’s understandable we’d move to a ”wait-and-see” approach.
The Bank considers many factors related to inflation, the currency, and the economy – I’m sure they have access to far more data than we do. But one source everyone can see is the Bank’s ”Business Outlook Survey,” which asks leading firms about their intentions and expectations.
Look at the chart below and you can convince yourself the ”heavy lifting” is done, and there isn’t a need for further hikes. The percent of firms expecting higher wage growth in the future has declined from 81% to 47%. That number was ~30-40% pre-COVID, so perhaps the super-hot inflationary environment of 1-2 years ago is receding.