Canada could face inflation problem by next year, economist warns
Sheryl King, head of Canada economics at Bank of America Merrill Lynch, said the central bank may have an "inflation problem" next year as concerns the U.S. recovery may falter will keep it from raising interest rates as quickly as needed.
Ms. King, who recommends investors purchase inflation-protected bonds, said the Bank of Canada may be putting a "higher-than-merited" probability of a double-dip recession in the U.S. That will keep the central bank from raising interest rates at its last two rate announcements this year, Ms. King said in an interview at Bloomberg`s Ottawa office.
"They`re very sang-froid about how much spare capacity there is and how well-anchored inflation expectations are," Ms. King said. "They`re probably going to be dealing with an inflation problem in 2011."
While Bank of Canada Governor Mark Carney has raised interest rates twice since June 1 to 0.75%, the central bank has said further action would be "weighed carefully against domestic and global economic developments." The bank`s policy makers next meet on Sept. 8.
Bank of America Merrill Lynch predicts inflation will accelerate to as high as 3.5% in the last quarter of 2011, which would be the fastest quarterly rate since 2003. Excluding volatile items, core inflation will accelerate to as high as 2.5% in the third quarter next year.
Read the full article here.
Sheryl King, head of Canada economics at Bank of America Merrill Lynch, said the central bank may have an "inflation problem" next year as concerns the U.S. recovery may falter will keep it from raising interest rates as quickly as needed.
Ms. King, who recommends investors purchase inflation-protected bonds, said the Bank of Canada may be putting a "higher-than-merited" probability of a double-dip recession in the U.S. That will keep the central bank from raising interest rates at its last two rate announcements this year, Ms. King said in an interview at Bloomberg`s Ottawa office.
"They`re very sang-froid about how much spare capacity there is and how well-anchored inflation expectations are," Ms. King said. "They`re probably going to be dealing with an inflation problem in 2011."
While Bank of Canada Governor Mark Carney has raised interest rates twice since June 1 to 0.75%, the central bank has said further action would be "weighed carefully against domestic and global economic developments." The bank`s policy makers next meet on Sept. 8.
Bank of America Merrill Lynch predicts inflation will accelerate to as high as 3.5% in the last quarter of 2011, which would be the fastest quarterly rate since 2003. Excluding volatile items, core inflation will accelerate to as high as 2.5% in the third quarter next year.
Read the full article here.