Commentary
The Bank of Canada (BoC) has raised the key overnight rate to 5 percent and the Bank Rate to 5.25 percent. The increases of one-quarter of a percent were widely anticipated by market observers. Coincidentally, the U.S. Consumer Price Index (CPI) for June was released and the core rate, at 3 percent, was lower than expected. Bond and stock markets rallied during the morning.
The BoC continues to demonstrate its concern about inflationary pressures in the economy. Core measures of inflation remain above the stated target of 2 percent despite Canadian inflation dropping from a high of 8.1 percent last summer to 3.4 percent in May. If we can generalize the previous consensus of market players and analysts, inflation has remained higher for longer than most expected and the economy has remained resilient, as many expected a recession by now….