As food inflation rises and loonies fall, Canadians await critical outlook from US Fed IG News

IG news Update,

The fact that food prices continue to rise comes as no surprise to Canadians responsible for doing grocery shopping. In fact, what Tuesday’s Statistics Canada data did was a frightening number on the rise.

But as they wait for the Bank of Canada to fix the problem of 10.8 percent food inflation – the biggest increase in grocery bills since 1981 – Canadians may be keeping a close eye on the US Federal Reserve’s announcement Wednesday.

The Bank of Canada is officially charged with setting Canada’s interest rates. And as Canadian central bank deputy governor Paul Baudry stressed on Tuesday after the latest inflation numbers, that’s still the case.

“We want to bring inflation down to two percent,” Beaudry told a gathering of students and professors at the University of Waterloo in southwestern Ontario on Tuesday afternoon. “That’s where it was for a long time. Now it’s going up a lot.”

Bydry saw some good news in the fact that Canadian inflation continued to fall from its highs. But the fact that price increases remain “broad-based”—in other words, affecting a lot of goods beyond food and fuel—was another danger signal that inflation expectations were stubbornly in the minds of Canadians.

Bank of Canada Deputy Governor Paul Baudry said on Tuesday that Canada will do “whatever it takes” to bring inflation down to its 2 percent target range. But as markets fall again, some economists say the US Fed’s impact will be even greater for Canadians. (David Kawai/Bloomberg/Getty Images)

Given earners planning to raise prices and boost their wage demands, it may take two years to remove that kind of inflationary thinking from businesses’ perceptions, he said. The bank’s method involves more large interest rate hikes, along with a strategy of communication, to try to convince rational economic thinkers that inflation will decrease, Beaudry said.

Baudry said he expects to “get back to low inflation with the least possible disruption on the real side of the economy”, but added that the Bank of Canada will do “whatever it takes”. It was read by Desjardins managing director and economist Royce Mendes as saying that the bank would accept a recession if necessary to crush rising prices.

While Bank of Canada rate hikes have an impact on Canadians, the US central bank, known as the Fed, north of the border is also critical to the lives of consumers, homeowners and investors.

According to some economists, what the Fed does may have a bigger impact on Canadians than the interest rate changes by Byudry and his team. Surely anyone with a stock portfolio who watched the markets tumble on Tuesday on anticipation of a rise in US interest rates would agree.

look | Grocery bills are increasing at the fastest rate in 40 years:

Inflation cools, but not enough to drive down grocery prices

Canada’s inflation rate fell again to seven percent in August, new data shows, but grocery prices are still at their highest level in decades.

marriage of inconvenience

The relationship between Canada’s central bank and the Fed is somewhat like a forced marriage. A border that stretches for about 9,000 km, deeply integrated economies, close trade and banking ties, and currencies that rise and fall together mean it is difficult to consider divorce. And while this isn’t usually a troubled relationship, it’s not always convenient—and certainly not a marriage of equality.

Prime Minister Justin Trudeau’s late father, Pierre Elliot Trudeau, once compared living next to the United States to sleeping with an elephant.

Pierre Elliot Trudeau, left, when he was Prime Minister of Canada, is shown with then-US President Richard Nixon at the White House on March 24, 1969 in Washington. In a speech during the trip, Trudeau compared living next to America with gold. with an elephant. (The Associated Press)

“No matter how friendly and even-tempered,” Trudeau Pere said in a speech to the US National Press Club more than 50 years ago.

When it comes to monetary policy, the same thing still applies, Pedro Antunes, chief economist of the Conference Board of Canada, said on Tuesday.

“If America itself gets into a hard landing scenario, it’s very hard for us to avoid it in Canada,” he said.

Compared to the US, Tuesday’s data indicates that Canada’s inflation is moderating. The most recent US data showed that core inflation – a statistical measure that excludes the most volatile prices for things like food and fuel – continued to rise. But as Antunes and many others observed, the Canadian Corps was down on Tuesday.

are you going alone?

He said this is little comfort for poor Canadians who spend a disproportionate portion of their income on food, but some analysts have suggested the Bank of Canada may not raise rates as much or as quickly as it intended. was.

If so, Byudrey did not give any assurance to this effect. Economists know that it is very difficult for Canada’s central bank to move far away from the Fed as it raises interest rates.

At least two weeks ago, Carolyn Rogers, senior deputy governor of the Bank of Canada, suggested that a rising loonie charged by energy exports would act as a pad against inflation in Canada. But since then Canada’s currency has fallen to its lowest level in two years. This makes imports more expensive, especially from our largest trading partner – the elephant – which makes Canada’s inflation higher.

Even as Canadian domestic prices begin to decline, the price of many internationally traded goods, including oil and animal feed, rises in North American markets. A lot of our food comes from American farms, but even products from outside the continent, such as grapes from Peru, are cleared through US ports and priced in US dollars for the US market.

A home for sale in Toronto earlier this summer, when interest rates were low. While the Bank of Canada sets the rates, long-term mortgages are guided by bond prices in the US markets. (Don Pittis/CBC)

What you pay for your home is also at least partially ‘Made in America’. While the rule of thumb is that short-term mortgages in Canada are pegged at the overnight rate from the Bank of Canada, long-term interest rates are based on bond prices set in New York as lenders hedge against further rate increases.

And as noted, while some economists expressed optimism that the Bank of Canada could reduce interest rate hikes, anyone investing in the stock market or holding long-term bonds should be thrilled with that prospect. There was no reason.

US and Canadian stocks, and even cryptocurrencies, fell sharply on Monday on fears of what Federal Reserve Chairman Jerome Powell might do the next day – with bitcoin falling below $19,000 US.

Of course, as in any marriage, Canadians must accept the good with the bad.

Bank of Canada Governor Tiff McCalem has repeatedly said in the past that the only practical way to prevent inflation from stealing buyer power from Canadian wage earners is to use rising interest rates to bring inflation under control. But it’s hard when the price hikes we see come with global imports.

While Canada acting alone may not have much of an impact on world prices, Canadians could also benefit if the US Federal Reserve decides to use its full force to curb global inflation.