Canadian Inflation l US Interest Rate Hikes

There was monetary news coming from both sides of the border this Wednesday as the Bank of Canada released their inflation numbers for February and the US Federal Reserve announced their first rate hike since 2018 at 0.25% setting the overnight rate at 0.50%.

Canada Inflation

Source: Statistics Canada

The Bank of Canada announced the Canadian Consumer Price Index (CPI) increased 5.7% from February 2021 - February 2022. This increase in inflation is the largest gain in Canada since August 1991. Below is a breakdown of how each consumer segment was impacted:

Sources: Statistics Canada

Gasoline, the largest contributor to the increase, experienced rapid price appreciation over February due to the Ukraine/Russia war and the economic sanctions that have been levied against Russia, one of the world’s largest oil producers. The price of a barrel of oil reached as high as US$115 over the past few weeks but has since fallen back down below US$100 based on hopes that an agreement will be reached between the two governments.

Inflation is still expected to rise over the coming months as the conflict in Ukraine continues to impact the global economy and recent COVID lockdowns in China have stalled international supply chains.

In response to this rising inflation, on March 2nd, the Government of Canada raised their target rate from 0.25% to 0.50% and are expected to raise rates by another 25 basis points at their next meeting on April 18th.

Federal Reserve Announces 0.25% Rate Hike

The Federal Reserve approved its first rate hike since December 2018 to increase the benchmark interest rate from 0.25% to 0.5%. This is the first of many rate hikes expected this year. The committee announced that they expect to increase rates at each of the remaining six meetings in 2022 to curtail inflation.

The Federal Open Market Committee also announced that it will begin to reduce its holdings of Treasury securities, agency debt, and mortgage-backed securities. Their current balance sheet is nearly $9 trillion dollars which was built up throughout the pandemic as another form of stimulus for the US economy.

Source: USA Federal Reserve

The Federal Reserve’s next meeting is scheduled for May 4th, 2022, where they could potentially announce a 0.50% rate hike depending on economic conditions.

Below is a schedule for the remaining Federal Reserve Committee meetings in 2022:

● May 4th

● June 15th

● July 27th

● September 21st

● November 2nd

● December 14th

Source: FRED

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