“Not there yet.”
That was one of the core messages from the Bank of Canada’s governor on Thursday when talking about the drive to slow inflation in the country — and the possibility of cutting interest rates.
During a speech to the Calgary Chamber of Commerce, and speaking later with reporters, Tiff Macklem stressed the need to continue to make progress on bringing down inflation to the bank’s target level of two per cent.
The address came one day after the Bank of Canada decided against hiking interest rates again, giving weary Alberta consumers and businesses some respite.
It left the key policy rate at five per cent, although the central bank noted it’s keeping a keen eye on the stubborn rise in prices across the country. It hasn’t ruled out further increases, if necessary.
“Monetary policy is working to bring inflation down and we’re encouraged by the progress so far,” Macklem told the crowd.
“Our two per cent (inflation) target is now in sight, but we are not there yet — and we are concerned progress has slowed.
“Monetary policy still has work to do to restore price stability for Canadians and we are committed to staying the course.”
In his address to the business audience, Macklem acknowledged the pain that rising borrowing costs have had on Canadians, but pointed to the obvious signs of excess demand that occurred within the economy during the pandemic.
Inflation peaked at 8.1 per cent last summer.
Core inflation is now running around 3.5 per cent, he noted.
Since April 2022, the policy rate has climbed from one per cent to five per cent, including three hikes this year.
Progress has been made, but it has hurt.
Just don’t expect cuts to interest rates anytime soon.
“If the conditions suggest that we don’t need as restrictive monetary policy to hit the target, yes, we can lower interest rates,” he told journalists during a news conference.
“But I do want to underline again that we’re not there yet. And it’s too early to be talking about interest rate cuts. We are still assessing whether monetary policy is restrictive enough to get us back to the target.”
In the bank’s statement that maintained the overnight rate at five per cent, it noted Wednesday that core inflation remains elevated.
Economic growth actually went into reverse during the April-to-June period, contracting by an annualized rate of 0.2 per cent, hobbled by weaker consumption levels and slower housing activity in Canada.
“We know it takes time for interest rate increases to work their way through the economy and relieve price pressures. The other possibility, of course, is that monetary policy is not yet restrictive enough to restore price stability,” Macklem said during the speech.
A tight labour market for companies searching for workers has gradually eased — at one point, there were more than 100,000 jobs open in the province — but wage growth still remains around four to five per cent.
While the consumer price index in July increased by 3.3 per cent nationally, inflation is expected to climb in the near term due to recent hikes in gasoline and rising global oil prices, which topped US$86 a barrel on Thursday.
Macklem said he didn’t think the economy was in recession, but the bank is expecting lower levels of growth.
Calgary Chamber of Commerce CEO Deborah Yedlin said business operators are feeling a sense of “relief” by the bank’s decision this week.
“We are hearing from our businesses that the higher interest rates are causing challenges . . . the issues of affordability are front and centre for everybody,” she said.
“To have interest rates stay where they are for now was very welcome news.”
Alberta Central chief economist Charles St-Arnaud said further rate increases this year can’t be ruled out, but look unlikely.
Wage growth remains quite high and new data on Friday should help clarify if that pressure is abating, he said.
“There are still some reasons to be concerned about inflation. But at the same time, we’re seeing the real economy — both in terms of growth and the labour markets — are slowing,” St-Arnaud said.
“It’s a step in the right direction. I don’t think the Bank of Canada — and I would certainly not — claim victory on inflation yet.”
For business operators, higher interest rates remain one of their top five concerns, said Adam Legge, president of the Business Council of Alberta.
The council’s survey of business leaders indicates they have decreased some capital expenditures because of the higher costs of borrowing, and anticipate slower economic activity because of it.
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“It absolutely was the right decision. There is a need to pause, to see how the previous year’s worth of rate increases actually flow through the economy,” Legge said of Wednesday’s move by the central bank.
“The Bank of Canada has a difficult job in terms of trying to use a single tool to try to address inflation across a country that has a vast range of regional realities.”
For consumers who have faced rising mortgage payments and higher grocery and utility bills, and business operators who are trying to prepare budgets for next year, the bank’s next rate decision in October will be closely watched.
“I want to be clear — we are not trying to kill growth. We want strong, sustainable growth and a healthy labour market,” Macklem told the chamber.
“We know higher interest rates are hitting some Canadians hard, and we don’t want this to be any harder than necessary. But letting too-high inflation persist would be worse,” he said.
“The target is now in sight. We need to stay the course.”
Chris Varcoe is a Calgary Herald columnist.
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