Omicron, inflation, housing: What’s going into the Bank of Canada’s interest rate call?

Odds are growing that the Bank of Canada will issue an interest rate hike earlier in the year than forecast as inflation soars to 30-year highs.

The likelihood of an interest rate hike from the Bank of Canada next week is growing as record levels of inflation and high housing prices coincide with an anticipated economic rebound from the Omicron wave of the pandemic, some economists say.

Scotiabank Economics said in a note to investors Wednesday that it expects the Bank of Canada to raise its key overnight rate by 25 basis points to 0.5 per cent at its next meeting Jan 26.

This would be the first of multiple interest rate hikes over the course of the year, senior economist Jean-Francois Perrault forecasts, with rates hitting two per cent by the end of 2022.

While the Bank of Canada signalled at the end of last year that interest rate increases were likely for 2022, it had pegged possible hikes towards the middle of the year.

But Perrault said in his note that the central bank could be forced to act sooner than anticipated after Statistics Canada reported on Wednesday that the annual rate of inflation hit 4.8 per cent in December — the highest level in 30 years.

“Despite a clear, but temporary, negative impact of Omicron on economic activity, it is clear that inflationary pressures are larger than earlier assessed and require a more robust monetary policy response,” he wrote.

James Orlando, a senior economist with TD Economics, told Global News in an interview that conditions are right for an interest rate hike in the near future.

“The Bank of Canada is in a position right now where inflation is at this uncomfortable level, where the economy is hot, where we’re likely going to bounce back strongly from this Omicron time period,” he said.