Bank of Canada chief sees inflation ‘a little over’ 8% as soon as next week

OTTAWA: The Bank of Canada expects inflation to go “a little over” 8%, 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%). 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% in May, the highest since January 1983. Analysts surveyed by Reuters expect June inflation to hit 8.3%, which would be the highest since 1982. The data will be released on Wednesday at 8:30 a.m. ET (1230 GMT).

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Macklem reiterated the Bank of Canada now expects inflation to average around 8% for the next few months, then fall to around 3% by the end of 2023 and to the 2% target in 2024.

He 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 had planned to release a recording of the webcast on Thursday, but due to technical glitch it was not actually recorded, it said. Instead the business group put a transcript up on its website late Friday night.