The central bank said in a press release that inflation in Canada is higher and more persistent than the bank expected and will likely remain around 8 percent in the next few months.
Surveys indicate more consumers and businesses are expecting inflation to be higher for longer, raising the risk that elevated inflation becomes entrenched in price- and wage-setting. If that occurs, the economic cost of restoring price stability will be higher, the bank said.
The bank estimated that the Canadian gross domestic product grew by about 4 percent in the second quarter. Growth is expected to slow to about 2 percent in the third quarter as consumption growth moderates and housing market activity pulls back following unsustainable strength during the pandemic.
According to the bank, Canada's economy is expected to grow by 3.5 percent in 2022, 1.75 percent in 2023, and 2.5 percent in 2024.
Economic activity will slow as global growth moderates and tighter monetary policy works its way through the economy. This, combined with the resolution of supply disruptions, will bring demand and supply back into balance and alleviate inflationary pressures, the bank said, adding that the July outlook has inflation starting to come back down later this year, easing to about 3 percent by the end of next year and returning to the 2 percent target by the end of 2024.
Quantitative tightening continues and is complementing increases in the policy interest rate, the Bank of Canada said.
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