–Inflation Has Eased but Yet to See ‘Generalized Decline’ in Price Pressures
(MaceNews) – Bank of Canada Governor Tiff Macklem on Wednesday said the central bank is getting closer to the end of its credit tightening cycle that began in March, but stressed that interest rates will need to rise further to slow demand and bring elevated inflation back to target.
He also told the House of Commons Standing Committee on Finance that inflation in Canada remains “high and broad-based,” reflecting large increases in both goods and services prices. “Inflation has come down in recent months, but we have yet to see a generalized decline in price pressures,” he said.
Canada’s consumer price index rose 6.9% on the year in October, with the pace of increase steady from the rate in September, as largely expected. The CPI jumped 0.7% on the month in October after a 0.1% gain in September, largely driven by a 9.2% rebound in gasoline prices after a 7.4% dip the previous month.
In October, the bank raised the policy interest rate by 50 basis points to 3.75% and economists expect it to conduct another 50-bps rate hike next month.
“We also expect our policy rate will need to rise further,” Macklem said, repeating the bank’s statement from October. “How much further will depend on how monetary policy is working to slow demand, how supply challenges are resolving and how inflation and inflation expectations are responding to this tightening cycle.”
The economy is still in excess demand and overheated, he said, adding that job vacancies have declined from their peak but remain high, and businesses continue to report widespread labour shortages.
He also repeated his earlier remarks that the bank is still far from its goal of ensuring “inflation is low, stable and predictable.”
“We view the risks around our forecast for inflation to be reasonably balanced. But with inflation so far above our target, we are particularly concerned about the upside risks,” he added.
BOC policymakers are “mindful” that adjusting to higher interest rates is difficult for many Canadians as many households have significant debt loads, and higher interest rates add to their burden, said the governor.
“We don’t want this transition to be more difficult than it has to be,” he said. “But higher interest rates in the short term will bring inflation down in the long term.”