In light of the deceleration in business investment, the Bank of Canada has little reason to hike interest rates at the Bank’s next policy meeting on September 5. Investors are betting that a rate hike in October is a near certainty according to Bloomberg Canada.

Bank of Canada Governor Stephen Poloz played down inflation worries and the prospect of aggressive interest rate increases last week at a Fed conference in the US. Poloz argued that the recent spike in inflation to 3% in July, the highest in the G-7, was due to transitory factors that would eventually be reversed. The wage measures in today’s GDP report, along with the separate May employment earnings numbers, point to the Bank of Canada’s ‘wage-common’ measure rising 2.4% in Q2,  little changed from the increase in the first quarter.

Even though Canada is bumping up against capacity constraints and labour shortages are rising, Governor Poloz appears to be in no hurry to bring interest rates all the way back to non-stimulative levels. He has repeatedly made a case for gradualism citing heightened uncertainty over geopolitics and trade as well as economists’ inability to measure critical parameters like potential growth.

The Bank of Canada has raised its benchmark interest rate four times since July 2017 to cool the economy, and market indicators suggest investors are expecting as many as three more hikes over the next year, after which the central bank is anticipated to go into a long pause. That will leave the target for the benchmark rate, currently at 1.5%, at 2.25%–below the 3% “neutral” rate the Bank estimates as a final, non-stimulative resting place for overnight borrowing costs.