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Monday, March 22, 2010

Canadian Mortgage Broker News - Inflation jump causes more interest rate speculation

Canadian Mortgage Broker News - Inflation jump causes more interest rate speculation

Inflation jump causes more interest rate speculation

| Monday, 22 March 2010

Some experts are predicting Bank of Canada interest rate hikes are less than three months away after Statistics Canada reported core inflation jumped to 2.1 per cent in February. This compares to the central bank's outlook of a 1.6 per cent average core inflation rate in the first quarter of 2010.

"We're progressively leaving the recovery phase," Yanick Desnoyers, assistant chief economist at National Bank Financial in Montreal told the Globe and Mail. He added policy makers "are going to change their tone on the economy in April, and they're going to move in June. The longer they wait, the more aggressive they'll have to be."

Inflation wasn't predicted to reach the Bank of Canada's two per cent target until the third quarter of the year and some are saying the effect of the Olympic Games in Vancouver - which drove up costs, particularly in the hotel sector - caused the jump. The inflation numbers also contributed to a surge in the Canadian dollar, which hit a high of 99.38 cents U.S. on Friday.

"[This] report must be turning heads at the Bank of Canada," economists Derek Holt and Karen Cordes Woods at Scotia Capital told the Financial Post. "While the details are mixed on the underlying components, it is pretty difficult to argue that emergency rates in Canada [of 0.25%] are still warranted."

In contrast, the Post said economists at TD Securities don't expect the Bank of Canada to over-react to the new number because "one-off factors" are well-identified.

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