BoC may have to hold interest rates due to January inflation numbers

With gasoline prices up in January, and year over year price increases in seven of the eight major categories, it was a surprise to see inflation numbers drop in January. Overall consumer prices rose by .03% in January while inflation actually dropped .10 of a point to 2.3%

There is expectation, with the Bank of Canada’s next rate announcement coming on March 1st, that inflation will not be a cause for reactionary concern, making it harder for the BoC to raise the overnight rate.

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Interest rate hikes are coming.

Most of Canada's economist and securities dealers expect interest rates to start to rise as early as May. While we have been preparing for an rise in the Bank of Canada rate in July, recent data has suggested that it will happen as soon as May, and possibly in April.

When inflation hits the 2% benchmark number the next move is to raise interest rates to slow down consumer spending. January's inflation numbers came in under expectations at 2.3%, but job creation was 4 times what was projected, putting pressure on the BoC to start to raise interest rates.

The one certainty is not if rates will rise but when.

The next bank of Canada rate announcement is March 1st 2011.

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RBC Reports: Mortgage rates to rise, but housing market to be stable over the next two years

RBC came out and reported that they expect the Bank of Canada to raise rates as much as 1% this year and 1.5% in 2012. A fairly bold statement, but the best news from the article is the positive statements made regarding the economic recovery.

“Going forward, we see nearly perfectly offsetting forces driving Canada’s housing market,” he said. “On the upside, the economic recovery will gather strength in 2011, continuing to boost employment and family incomes.

“Even though mortgage rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity,” CREA chief economist Gregory Klump said. “Strengthening economic fundamentals will keep the housing market in balance, which will keep prices stable.”

Click here to read the complete article from The Globe and Mail.