Canada: growth picks up but inflation remains low - Wells Fargo

Analysts from Wells Fargo, point out that the Canadian economy gained some momentum but at the same time, inflation remained at the low end of the Bank of Canada target range. 

Key Quotes: 

“The Canadian economy has gathered some momentum of late, reaching year-over-year growth of 3.7 percent, up from just 0.4 percent in Q4-2015. With the economy growing at an annualized rate of 4.5 percent, it is currently the fastest growing G-7 economy. Fixed investment spending has turned positive after remaining all of 2015-2016 in negative territory on a year-ago basis. Private consumption growth has also been solid amid an improving labor market; the unemployment rate has fallen nearly a percentage point over the past year.”

“Despite the pick-up in economic growth, inflation remains at the low end of the Bank of Canada’s (BoC) 1-3 percent target range. But, in a semi-surprise move, the BoC increased its overnight lending rate to 1.0 percent at its September meeting. The BoC attributed this increase to the acceleration in the Canadian economy as being “more broadly based and selfsustaining.” The BoC remains cautious in its approach going forward, as high debt levels and overheated housing markets could weigh on the sustainability of consumer spending.”

“Higher interest rates could discourage additional consumer leveraging, as well as the funding available to finance home purchases. However, if interest rates rise too quickly, existing vulnerabilities could cause more severe economic disruptions. The BoC will be forced to balance these factors going forward by tightening policy at a gradual pace.”