2023-10-16 11:43:53
The governor provided an overview of topics the Bank of Canada’s board will discuss ahead of the Oct. 25 rate decision.
“I expect the focus will be on whether we stay with a policy rate of 5.0% and let past interest rate hikes act on the economy and ease pressures on prices, or whether the weight of evidence of all these economic indicators, when taken together, tells us that further action is needed to restore price stability,” said Tiff Macklem.
The governor noted that although demand in the economy was slowing, underlying inflation — which eliminates price volatility — had remained persistent over the past six to eight months.
“We’re not really seeing any downward momentum in underlying inflation, and that’s concerning,” admitted Tiff Macklem.
The Bank of Canada kept its key interest rate unchanged last month, but it did not close the door to further rate hikes if necessary.
Canada’s annual inflation was 4.0% in August. Data for September is due to be released next week.
The IMF meetings come as the conflict between Israel and Hamas continues and risks intensifying. Asked regarding the impact the conflict might have on the global economy, Tiff Macklem said it was too early to tell.
“It’s much too early to tell. And it really depends on how much the situation escalates,” Tiff Macklem said.
The Russian invasion of Ukraine in February 2022 had a significant impact on commodity prices, fueling the surge in inflation.
Since then, price growth has slowed significantly and economic conditions are worsening as central banks around the world raise interest rates.
The IMF recently released an updated economic outlook, warning that the global economy had lost momentum as higher interest rates took hold.
“The global economy is limping, it is not sprinting,” illustrated Pierre-Olivier Gourinchas, chief economist of the IMF, during a press conference at the start of the week.
Symptoms of inflation
In Canada, the economy has also slowed. It even contracted in the second quarter of the year, due to the slowdown in consumer spending.
The job market has also weakened this year, as the number of job vacancies declined and the unemployment rate rose slightly. Yet job growth continues as the Canadian population increases.
Rising interest rates have sparked backlash from labor groups over the impact that tighter financial conditions might have on employment. Political leaders also stepped in to urge the Bank of Canada, which operates independently of the government, to stop raising interest rates.
Tiff Macklem said the unrest caused by rising interest rates in the political and public spheres were symptoms of high inflation.
“I think, unfortunately, what we’re seeing is exactly what inflation is doing. Inflation erodes trust in institutions, it erodes trust in governments. It makes people feel ripped off. We are seeing more strikes in this country. We are seeing more strikes in other countries. These are symptoms of inflation,” argued Tiff Macklem.
Restoring price stability is the best way to resolve these problems, the governor argued, while acknowledging that achieving this would not be easy and would cause financial hardship for families.
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