Anyone with hopes for a Bank of Canada interest rate cut will have to put them on hold.
The latest numbers from Statistics Canada show Gross Domestic Product (GDP) came in stronger than expected in the first quarter of this year, at 3.1%. Forecasters were predicting 2.5%.
GDP is the total value of all goods and services produced by the economy and it is one of the key factors being watched by the Bank of Canada in the fight to bring down inflation.
StatsCan says a 5.7% increase in household spending was a chief contributor to the stronger than expected performance. It seems Canadians are still using up the estimated $350 billion in additional savings they accumulated during the pandemic.
The Bank of Canada and other forecasting agencies had expected Canada would be falling into a recession right about now, but early readings for April indicate there was continued growth, at a modest rate of 0.2%. (A technical recession occurs when GDP shrinks for two consecutive quarters.)
The economy’s on-going resilience, and a small increase in the inflation rate in April, have triggered speculation that the Bank of Canada could resume hiking interest rates in its efforts to slow down the economy and bring inflation back to its 2.0% target.
Most market watchers believe the BoC has to be seriously considering another rate increase, but probably not until July. There will more data by then, including the latest job numbers which are another key component in the Bank’s interest rate calculations.