Will the Bank of Canada hike rates again? This week will decide

Anyone worried about interest rates, economic growth and jobs numbers is bracing for a busy and consequential week. Canadians will be hit by a tsunami of economic data over the next 10 days. 

The latest inflation numbers, data on how much stuff Canada's economy is cranking out and a key reading on the mood of consumers won't just tell us how the economy has performed through the first half of the year, they'll set policy decisions that will dictate how the rest of the year will unfold.

"I would say it's very important," said RBC economist Carrie Freestone. 

Freestone said she believes the Bank of Canada will probably raise rates when it meets on July 12, but that this week's data should tell us all we need to know about the bank's decision.

"We think they're gonna go 25 (basis points). They could have to hike higher if we're in a situation where expectations are not tamed," she told CBC News.

The Bank of Canada has been aggressively raising interest rates in an attempt to rein in inflation. The theory is that as rates rise, consumers are squeezed by higher debt payments.

With more money going toward servicing their debt, Canadians have less of it to spend anywhere else. That tends to slow down the economy and bring down prices — which is exactly what the Bank of Canada is trying to accomplish with rate hikes in the first place: bring down inflation.

The problem is through most of this year, economic data have come in hotter than expected.

Gross domestic product, the total value of all goods and services produced by the country's economy, grew at an annualized rate of 3.1 per cent in the first quarter of 2023. Canadian employers have added more than 230,000 jobs so far this year.

And just last week, retail sales figures showed Canadian consumers were still spending at rates that just don't show an economy that is slowing.

"In some ways it feels like in the Road Runner when Wile E. Coyote runs off a cliff and he just hasn't looked down yet," said Randall Bartlett, the senior director of Canadian economics at Desjardins Group.

"Households are getting more and more squeezed, but they're continuing to behave in a way that doesn't necessarily reflect that reality of higher borrowing costs and higher inflation," said Bartlett.

And that's why this week's data are so important.

Economists surveyed by Bloomberg say year over year inflation numbers will show a sharp deceleration in price growth. Inflation peaked last summer at 8.1 per cent. Prices continue to rise, but at a steadily slower pace.