Why drivers in Eastern Canada could see big gas price spikes, and other Canadians won't
Drivers in Eastern Canada face a big increase in gas prices because of various factors, especially the higher cost of the summer blend, industry analysts say.
In the wake of the Bank of Canada’s unexpected rate hike, economists are pointing to further tightening in the near term.
On Wednesday, the Bank of Canada surprised the majority of experts by raising interest rates 25 basis points to 4.75 per cent, the bank’s first hike since January.
In a statement, Bank of Canada Governor Tiff Macklem said, “Excess demand in the economy looks to be more persistent than anticipated.”
Earl Davis, head of fixed income at BMO Global Asset Management, said Wednesday's rate hike is a signal that further hikes may not be far behind.
“When the Bank of Canada starts hiking, it's not just one hike, it is multiple hikes,” he told BNN Bloomberg. “So because they hike today, I do expect to see one, if not two, more coming down the line before they pause again.”
Davis had previously predicted rates would reach six per cent by the end of the year, but has since shifted that estimation to five or 5.50 per cent, though rates could reach six per cent in the U.S.
Davis added that Wednesday’s announcement comes down to “inflation expectations” going back up or stalling its decline.
“If they go again, which I anticipate they will is shooting into the crowd of inflation, because they need to drop the expectations part of it down now,” he said.
Davis isn’t alone in expecting further hikes on the way, Steven Ranson, president and CEO of Home Equity Bank, also expects more will come.
“There’s probably another 25 basis points coming maybe not in July, but possibly in September if inflation doesn’t come down, and it doesn’t seem like it is,” he said. “Getting down to that two per cent number is going to be challenging and it seems like we’re a long way from that.”
John Murray, a former deputy governor at the Bank of Canada and current senior fellow at the C.D. Howe Institute, said he predicts the central bank may increase interest rates two or three more times before the end of this year as it continues to target inflation – though what comes next is “all very uncertain.”
Murray suggested that the Bank of Canada could use other “active quantitative tightening” approaches besides interest rate hikes, such as selling off its bond inventory.
Ultimately, Murray told BNN Bloomberg that he believes the central bank will be able to bring inflation back to its two per cent target using monetary policy.
“I think central banks here and elsewhere are absolutely determined to achieve and sustain their target,” he said. “It's a question of how much tightening is needed and in what form.”
Meanwhile, Josh Nye, a senior economist at the Royal Bank of Canada, said in a statement to expect further hikes.
“Our expectation has been that if the BoC was coming off the sidelines, they would intend to hike more than once—if 4.50 per cent wasn’t restrictive enough it’s hard to think 4.75 per cent is,” he said.
Not everyone is convinced more hikes are coming, however.
“A lot will depend on the data, if we’re looking at July meeting, there’s several pieces of data that could influence that decision,” said David Doyle, head of economics at the Macquarie Group.
The next rate announcement is scheduled for July 12.
With files from Holly McKenzie-Sutter
Drivers in Eastern Canada face a big increase in gas prices because of various factors, especially the higher cost of the summer blend, industry analysts say.
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