May’s inflation rate of 7.7% was the highest since 1983
Tiff Macklem, the Bank of Canada’s governor, is shown at a news conference in Ottawa on June 9. On Friday, he told independent businesses he expects inflation to surpass eight per cent soon, but recommended they not build that inflation rate into longer-term contracts, because it ‘will come down.’ (Patrick Doyle/The Canadian Press)
The Bank of Canada expects inflation to go “a little over” eight per cent as soon as next week, when June’s data is released, and stay in that range for a few more months, the central bank’s governor told a business group in a webcast transcript released late Friday.
Tiff Macklem, who spoke to the Canadian Federation of Independent Business (CFIB) a 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,” said Macklem. “It’s probably going to go a little over eight [per cent]. We have the next CPI [consumer price index] next week. We know oil prices were very high in June, so I wouldn’t be surprised to see it move up.”
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 latest data will be released on Wednesday at 8:30 a.m. ET.
Macklem reiterated the Bank of Canada now expects inflation to average around eight per cent for the next few months, then fall to around three per cent by the end of 2023 and to the two per cent target in 2024.
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Deputy Prime Minister Chrystia Freeland, who also serves as Canada’s finance minister, on Saturday said the federal government was responding by “not pouring fuel on the flames” through its budget and tackling some of the drivers of inflation, as well as labour 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.
‘Don’t build that into wage contracts’
Macklem also made it clear the bank is concerned about a wage-price spiral, where businesses raise wages to keep workers and then pass the higher costs on to consumers 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, so its transcript was published late the next day.