ECONOMIC IMPACT & RESOURCES

Bank of Canada hikes interest rates by 75 basis points

The Bank of Canada raised the benchmark overnight rate by 75 basis points to 3.25 per cent on Wednesday, giving Canada’s central bank the highest policy rate among major advanced economies. Officials said they expect to continue raising rates in coming months.

This is the fourth consecutive outsized interest-rate increase in a bid to slow the nation’s economy and drag inflation down from four-decade highs.

“Given the outlook for inflation, governing council still judges that the policy interest rate will need to rise further,” officials said in the statement.

The debate now moves to what the next steps will be for Macklem as the central bank tries to assess how high borrowing costs will need to rise to tackle sticky inflation. Markets are pricing in a strong chance of another half-percentage-point increase in October.

Yields on Canadian government two-year bonds rose slightly on the statement, up 1 basis point to 3.62 per cent at 10:09 a.m. in Toronto trading. The Canadian dollar was little changed, down 0.3 per cent to US$1.3183 per US dollar.

While dropping any references to “front-loading” increases, the statement suggests the Bank of Canada has shifted to thinking about smaller adjustments to policy, and is looking at where officials can start winding down the tightening campaign.

“As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target,” the bank said. Most economists expected the move.

The rate increase follows a surprise 100-basis-point hike in July, and half-point moves in April and June, making the current tightening effort one of the most aggressive ever. The overnight rate sat at an emergency pandemic low of 0.25 per cent until the beginning of March.

The central bank reiterated its commitment to bring consumer price gains back to the 2 per cent target and officials said they remain worried that persistently elevated inflation risks becoming entrenched in expectations.

“For those asking ‘Are we there yet?,’ the Bank of Canada answered ‘Not yet,’” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a report to investors. The bank is signaling “today’s outsized rate hike still leaves rates shy of where it believes they will need to be to quell inflation.”

While noting headline inflation eased in July on a drop in gasoline prices, policy makers pointed to a broadening of price pressures and increasingly sticky core measures. Officials flagged slower than expected economic growth in the second quarter, but highlighted “very strong” indicators of domestic demand, including consumption and business investment.

Wednesday’s move will also cement Macklem’s reputation as one of the more hawkish central bankers among peers.

Monetary authorities around the world are slamming on the brakes to halt a post-pandemic surge of inflation. The Reserve Bank of Australia raised its policy rate by a half-percentage point Tuesday, and Banco Central de Chile stunned investors with a 100-basis-point move later in the day. The European Central Bank is poised to deliver a 75-basis-point hike on Thursday and the US Federal Reserve meets later this month, with an increase of at least 50 basis points expected.

The Bank of Canada’s decision was a statement-only affair with no new forecasts. Senior Deputy Governor Carolyn Rogers is scheduled to speak and hold a press conference Thursday, where she will likely shed more light on the bank’s thinking.

Click here for the Bank of Canada’s press release.

OTHER NEWS

New federal Conservative leader to be selected on Saturday

The Conservative Party will select a new leader Saturday night at a convention in Ottawa.

The party reported last week that more than half of the 678,000 ballots it sent out to members have been returned. Veteran Conservative MP Pierre Poilievre’s camp says he has sold more than 300,000 memberships, making him the perceived front-runner.

Poilievre’s facing off against former Quebec premier Jean Charest, fellow caucus members Leslyn Lewis and Scott Aitchison, and Roman Baber, a former Ontario MPP who was booted from the Progressive Conservative caucus over opposing lockdowns.

Interim Conservative Leader Candice Bergen says she’s not running in next election

Interim Conservative Leader Candice Bergen says she won’t be running in the next federal election, but will stay on as an MP after a new leader is selected this weekend.

“Serving the constituents of Portage-Lisgar for 14 years has been the honour of my political life and I am eternally grateful to have had the opportunity to be their voice in the House of Commons,” she said in a statement Tuesday morning.

“I will wholeheartedly be supporting whoever takes my place as leader after Sept. 10. I’m incredibly optimistic about the future of the Conservative movement in Canada. When Conservatives are strong and united, Conservatives win.”

Before taking on the interim leader role after Erin O’Toole’s ouster earlier this year, Bergen was previously the Conservatives’ deputy leader and has been among the party’s most prominent voices in the House of Commons. The Manitoba MP was first elected to represent the riding of Portage-Lisgar in 2008.

NEWS FROM OTHER COUNTRIES

FAST Act signed by California Governor

On Labor Day, California Governor Gavin Newsom signed AB 257, the Fast Food Accountability and Standards Recovery Act (FAST Act).

The new law authorizes the creation of the Fast Food Council comprised of unelected and unaccountable representatives from labor and management to set minimum standards for workers in the fast food industry, including for wages, conditions related to health and safety, security in the workplace, the right to take time off from work. The “Fast Food Council” that would have regulatory authority over California locations of national counter service restaurants.

According to analysis from the IFA, the legislation, which singles out the quick-service restaurant industry and the franchise business model, stands to increase prices as much as 20% at impacted restaurants and harm local businesses, without improving existing worker protections in the state.

Industry response

Restaurant owners and franchisers opposed the law, citing an analysis they commissioned by the UC Riverside Center for Economic Forecast and Development saying that the legislation would increase consumers’ costs.

The International Franchise Association called it a “fork in the eye” of people who run restaurant franchises and said it could raise consumer prices as much as 20%.

“This bill has been built on a lie, and now small business owners, their employees, and their customers will have to pay the price,” IFA President and CEO Matthew Haller said in a statement. “Franchises already pay higher wages and offer more opportunity for advancement than their independent counterparts, and this bill unfairly targets one of the greatest models for achieving the American Dream and the millions of people it supports.”

Click here to read the IFA press release.

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