Inflation 'going the wrong way' and more interest rate hikes are possible: economist
For the second consecutive month, Canada's inflation rate has risen, and one economist is warning a spike inflation could mean more rate hikes are ahead.
"This is certainly bad news," David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, told CTV News Channel's Marcia MacMillan on Tuesday. "Likely setting us up for interest rate hikes to come."
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- The latest on inflation in Canada
Statistics Canada says the country's annual inflation rate rose to four per cent last month, up from 3.3 per cent in July, and was largely driven by rising gasoline prices.
Although, according to Macdonald, rising interest rates drove down inflation in some areas of the economy, and now those higher rates are actually "driving key parts of the inflation index," particularly in the rental and real estate markets.
"Rent is up 6.5 per cent year-over-year," Macdonald says. "This is the highest rent increase we've seen in at least 30 years."
The Bank of Canada has been consistently hiking its benchmark interest rate since March 2022 and Macdonald says it's having a big impact on homeowners with mortgages, particularly those looking to renew or who have a variable rate.
Read more on BNNBloomberg.ca:
- How can mortgage owners prepare for higher rates at renewal?
- Economist reacts to August inflation figures
- Higher rents boosted housing costs in August: StatCan
Macdonald warns that getting inflation down is the "primary goal" for the Bank of Canada with any pain to the Canadian labour market or economy being a secondary concern.
ARE MORE RATE HIKES COMING?
However, Macdonald warns that Canada is in a "dangerous situation" where the country is still outside the Bank of Canada's two per cent target and now "key parts of the index" are headed in the wrong direction.
"If we saw another report like this… I'd be concerned that we're looking at another increase in interest rates," he says.
Click on the video at the top of this article for the full interview.
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