Citi economist gets it right with outlier call on June rate hike, predicts another hike in July
An economist who was the first to predict a June rate hike from the Bank of Canada said she expects another increase next month as sticky inflation remains a concern.
Veronica Clark of Citi was in the minority of economists tracked by Bloomberg who expected a rate increase in June, with the majority predicting another pause.
But she said the data of the last few months showed inflation, despite dropping significantly since last year’s highs, remained too elevated for the Bank of Canada to stay on the sidelines, and other economic data remained too hot for the bank to achieve its goals.
“You don't want to be predicting that inflation is persistently too high, that's definitely not a good thing for anyone, but that is the fact of the matter,” Clark told BNN Bloomberg in a television interview on Thursday.
“There's really not a lot of hope for inflation coming back to two per cent if activity is still very strong. It tells you that some additional tightening is needed.”
The Bank of Canada raised its key interest rate to 4.75 per cent on Wednesday, the first increase since it moved rates up to 4.5 per cent in January.
Since January, Clark said the rebound in Canada’s housing prices has emerged as a new inflation concern that the central bank is likely watching, as some prospective homebuyers may have gained confidence and jumped into the market amid the pause on rate hikes. The resumption of rate increases could influence homebuyer behaviour, she said.
“I am expecting that the bank is going to be hiking again in July,” she said. “They will be concerned about households that are sensitive to higher rates, but you really do need to dampen that demand.”
As for Friday’s expected jobs numbers, Clark said she expected some weakness, though the numbers can be volatile with potential for “upside surprises” given Canada’s high levels of immigration.
Clark said she is also anticipating the U.S. Federal Reserve will hike rates at its meeting next week, and again in July as that country also contends with high inflation.