The Bank of Canada will likely increase interest rates by 1.5 percentage points because of anticipated inflation later this year, according to Sheryl King, chief investment strategist for Merrill Lynch Canada.
The rate rises would lead to increased costs for many types of consumer debt, including variable-rate mortgages.
King predicts inflation is growing because the economy is quickly using up the extra room from the 2008 recession. “I think that inflation in Canada is going to be the big story for 2011,” she said at the investment bank’s global outlook conference in Toronto.
The current core inflation rate, which excludes unstable factors such as food and energy, ranges between 1.4 and 1.5 per cent. This could double to almost 2.7 per cent by the end of the year, prompting King to forecast the higher borrowing costs.