Two interesting and conflicting headlines on inflation and rate hikes came out recently. One suggests that the BOC will wait on rate hikes until later than expected to stimulate recovery, while another says that the BOC will hike earlier than anticipated to head off persistent inflation. Let’s dig in.

Millan Mulraine of the OTPP (Ontario Teachers’ Pension Plan) was quoted in Bloomberg espousing the former views. David Wold, a portfolio manager for Fidelity Investments was quoted in the Financial Post expressing the latter view. Mulraine sees hikes coming not in 2022, but in 2023, thus ensuring a “full economic recovery” that is “self-sustaining”. Mulraine sees inflation, and a good amount of it – more so than expected. Other economists at TD and National Bank see rate hikes at the end of 2022, slightly sooner than Mulraine’s trajectory. All of their analysis revolved around the timing of when the economy recovers the output that was lost from COVID – and thus when rates no longer need to be ultra-low.

Wold, on the other hand, is more anxious about inflation and supply chain issues. He sees these problems persisting for some time longer than the BOC expects, and thus views a rate hike in 2022 as a must. Wold believes the BOC’s models do not sufficiently take into account the structural changes in the economy COVID has created (serious labour distortions and very challenging supply chain problems). Wold also argues that “spare capacity” and potential increased consumption the BOC is counting on is being soaked up by higher prices. Wold is counting on hikes coming earlier than expected. The disagreement between these two analysts is an interesting example of a growing lack of consensus on the BOC’s inflation and rate predictions from experts.