MoneySense

Mar 24, 2023

Inflation headlines are still the most interesting Global markets swing up and down, in large part, based on the anticipation of monetary policy going forward. As a result, news of a 0.25% rate hike by the US Federal Reserve – to a band of 4.75% to 5% – was a big deal this week. One bit got lost in the shuffle: the fact that a rate pause from the Bank of Canada (BoC) appears to be the right decision, given the disinflationary momentum revealed by Statistics Canada this week. - Advertisement - StatCan reported that Canada’s February inflation rate was down to 5.2%. That’s down from 5.9% in January, and 0.2% below the consensus forecast. While high grocery prices continue to draw public ire, two key pieces of good news haven’t gotten much attention: Wages grew faster than inflation for the first time in two years: 5.4% versus 5.2%. Global auditor RSM Canada predicts that inflation will top out at around 3% in 2023, and that the rate will reach 2% in 2024. - Advertisement - Based on larger supply-side issues due to avian flu and citrus diseases, grocery prices are bound to fluctuate. But BOC can’t do anything about it. For now it appears that rate-sensitive Canadian pricing is on a consistent path to stability. Meanwhile, US Fed Chair Jerome Powell continued to battle inflation with a widely anticipated “quarter point” rate hike. He acknowledged the inexact nature of monetary policy: - Advertisement - “However, I still think there is a way to [a soft landing], I think that path still exists, and, you know, we’re certainly trying to find it.” It is clear that Powell sought to reaffirm his commitment to aggressive monetary policy, saying: “If we need to raise rates, we will […] Certainly, we will eventually get tight enough policy to bring inflation down to 2%.” Stocks reacted neutrally to the news, but experts and commentators weren’t sure how to split credit for the downward momentum for the rate hike compared to news from the world of banking. So, uh, is the bank crisis over? As the headlines of the “bank run” began, it seemed as if the calm had settled down earlier in the week. Some medium-sized niche American banks went bust, and one badly managed Swiss bank was “sold for parts.” But, as far as the average person’s trust in the overall system went, we were essentially out of the woods.