Some way to go to see inflation rate slow, cut: Deputy BoC Governor
The inflation rate continues to present a hazard to Canada’s economy and the Bank of Canada will continue to monitor, to decide if the policy interest rate needs to be adjusted again, Senior Deputy Governor Carolyn Rogers says.
Rogers, a Winnipeg native who earned her first degree at Brandon University, told a Manitoba Chamber of Commerce lunch March 9 that this week’s decision to hold the policy interest rate at 4.5% should be regarded as a pause, not a firm number.
Inflation in Canada sits at 5.9% and while that’s better than the 8% seen a year ago, it is still significantly above the 2% the Bank of Canada considers a healthy, manageable rate.
She said a 2% inflation rate is seen as a good level as it does not weigh upon or change the investment and spending decisions of business and individuals.
Rogers ran through the various factors that have influenced inflation globally and in Canada, including the impact of the pandemic economic shutdown, spending habits of Canadians during those two years – homeowners, for example, sunk money into renovations which pushed up prices of goods such as building supplies – and geopolitical turmoil that affected the global supply, demand and prices of commodities such as oil and gas.
While inflation is a global issue today, the Bank reviews and sets policy interest rates on domestic environment and context. This week, the Bank decided against a 9th increase to the rate, while the United States Federal Reserve is expected to continue increasing its rate, perhaps by half a basis point this month.
While inflation is at a 40-year high in Canada, the Bank decided to “pause” another increase to its policy interest rate because in January, the factors were trending in the way forecasted, in favour of a cooling rate of inflation.
There are some signs that inflation will be cooling further, with oil and natural gas prices falling, metal prices softening, global supply chains improving, and shipping costs and delivery times are approaching those of pre-pandemic levels.
However, the job market is tight, with demand for workers putting pressure on businesses to raise wages, but productivity is not increasing – Canada continues to have one of the lowest productivity rates in the G7, she stressed.
That’s a risk to economic growth, she noted, because we have to produce, move and deliver those goods and services in demand.
We still need to see “further retreat” on demand and prices globally and domestically, she said, to get to that 2% inflation level.
