There is still no clear indication as to when the Bank of Canada may start to lower interest rates.
The central bank announced Wednesday that its key interest rate would remain at five per cent, where it has been since July.
Governor Tiff Macklem said inflation continues to ease gradually across the country, but not as fast as they would like it to.
“Inflation is still too high, and underlying inflationary pressures persist. We need to give these higher rates time to do their work,” said Macklem.
The Bank of Canada said global growth has slowed, but not quite as much as they thought it would, largely because of the “surprising resilience” of the U.S. economy.
Back on our side of the border, economic growth stalled in mid-2023 and is expected to remain flat in the near term. As a result, upward pressure on prices is expected to continue to moderate, and inflation should ease further.
However, Macklem said tightness in some parts of the economy is continuing to hold inflation up, the most prominent being housing.
Inflation in shelter services remains close to seven per cent because of rising mortgage interest costs, higher rents and other housing costs.
Meanwhile, food prices are not increasing as fast as they were, but food inflation still remains at around five per cent.
“All this push and pull on inflation means that further declines in inflation are likely to be gradual and uneven. That suggests the path back to our two per cent target will be slow, and risks remain,” said the governor.
The central bank expects inflation will remain close to three per cent during the first half of 2024 before easing to about 2.5 per cent by year end and returning to target in 2025.
“Governing Council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level,” said Macklem.
“That doesn’t mean we have ruled out further policy rate increases. If new developments push inflation higher, we may still need to raise rates.
“But what it does mean is that if the economy evolves broadly in line with the projection we published today, I expect future discussions will be about how long we maintain the policy rate at five per cent.”
