Bank of Canada Governor Tiff Macklem acknowledges that higher interest rates are effectively tempering economic activity and price increases. However, he cautions that it may take some time before inflation slows down to the central bank's target of 2%.

Concerns Regarding Inflation Progress

In a speech delivered in Calgary, Macklem expressed concerns over the sluggish progress towards the 2% inflation goal. He emphasized that monetary policy still has work to do in order to restore price stability for Canadians.

Interest Rates Remain Unchanged

The Bank of Canada officials decided to keep the key interest rate at 5.0% as the economy entered a weaker phase. Despite this decision, the central bank remains apprehensive about consistent underlying price pressures and is prepared to raise rates if conditions necessitate it.

Balanced Approach for Price Stability

Macklem believes that the past interest rate hikes are still impacting the economy and suggests that monetary policy might be sufficiently restrictive to restore price stability. However, he notes that inflation is currently at 3.3% as of July and there is limited downward momentum in underlying inflation.

Core Inflation Indicators

The Bank of Canada reports that underlying, or core, inflation is running at approximately 3.5% based on year-over-year and short-term gauges.

Evidence of Moderating Impact

Macklem points out that data since mid-July indicates clearer evidence that higher interest rates are effectively moderating spending and rebalancing demand and supply in the economy.

Balancing Growth and Stability

Macklem clarifies that higher interest rates are not intended to hinder economic growth. The Bank of Canada aims for 2% inflation as it ensures households do not need to worry about abrupt changes in the cost of living on an annual basis.

In summary, the Bank of Canada continues to focus on restoring price stability through higher interest rates. While progress towards the inflation target may be slower than desired, evidence suggests that these rate hikes are impacting the economy and moderating spending. The central bank remains committed to striking a balance between economic growth and stability.

Leave Comment