The Canadian government may be a critical roadblock in the central bank’s inflation fight. That is one of the findings of the latest Andersen Report on the North American economy.
Peter Andersen, a former senior economist at the Bank of Canada, delivers a monthly assessment of all things economic to CEOs and executives who are part of TEC Canada’s leadership development programs.
He says the level of spending by governments is stimulating the economy at a time when central banks are raising interest rates to slow it down.
The stimulus has Canada’s GDP growing faster than what we’re seeing in the U.S. When you add in a global slowdown, there will be pressure on both commodity prices and the Canadian dollar that are likely to result in inflationary hikes to import prices.
The government action makes it unlikely the central bank will hit its two per cent inflation target without raising interest rates further, a situation that is fueled by strong employment numbers, which are increasing labour costs that will be passed through to consumers in the form of higher prices.