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ANALYSIS | As food inflation soars and the loonie tumbles, Canadians wait for crucial outlook from U.S. Fed | CBC News

ANALYSIS | As food inflation soars and the loonie tumbles, Canadians wait for crucial outlook from U.S. Fed | CBC News

ANALYSIS | As food inflation soars and the loonie tumbles, Canadians wait for crucial outlook from U.S. Fed | CBC News
Sep 21, 2022 2 mins, 27 secs

But as they wait for the Bank of Canada to fix the problem of 10.8 per cent food inflation — the biggest rise in grocery bills since 1981 — Canadians may want to keep a close eye on Wednesday's announcement from the U.S.

The Bank of Canada is officially charged with setting Canadian interest rates.

And as the Canadian central bank's deputy governor, Paul Beaudry, insisted Tuesday following the latest inflation numbers, it is still on the case.

But the fact that price rises remain "broad based" — in other words, affecting a lot of goods beyond food and fuel — was one more danger sign that inflation expectations were stubbornly planted in the minds of Canadians.

Beaudry said the bank's method included more large interest rate hikes, combined with a strategy of communications, to try to convince rational economic thinkers that inflation would come down.

Beaudry said he hoped "to get back to lower inflation with the least possible disruption on the real side of the economy," but added that the Bank of Canada would do "whatever it takes." That was read by Desjardins managing director and economist Royce Mendes as saying the bank would accept a recession if necessary to crush rising prices.

While Bank of Canada rate hikes have an effect on Canadians, what the U.S.

The relationship between Canada's central bank and the Fed is a bit like a forced marriage.

He said that is little comfort for poorer Canadians who spend a disproportionate share of their income on food, but some analysts suggested the Bank of Canada will not have to raise rates as high or as quickly as it had intended.

If so, Beaudry did not provide any reassurance to that effect. Economists know it is also very hard for Canada's central bank to diverge too far from the Fed as it hikes interest rates.

Less that two weeks ago, the Bank of Canada's senior deputy governor, Carolyn Rogers, suggested that a rising loonie, charged up by energy exports, would act as a pad against inflation in Canada.

What you pay for your house is also at least partly 'Made in America.' While the rule of thumb is that short-term mortgages in Canada are pegged to the Bank of Canada overnight rate, longer-term interest rates are based on bond prices set in New York as lenders hedge against further rate increases.

And as mentioned, while some economists expressed optimism that the Bank of Canada could scale back interest rate increases, anyone with investments in the stock market or holding long-term bonds had little reason to be thrilled by that prospect.

Bank of Canada governor Tiff Macklem has said in the past that the only practical way to prevent inflation from repeatedly stealing buyer power from Canadian wage earners is to use rising interest rates to bring inflation under control.

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