First National Financial LP®

Residential Market Commentary - A change in tone on inflation

  • First National Financial LP

In its most recent rate setting the Bank of Canada decided, once again, to hold steady at 0.25%.  But in comments after the announcement, Governor Tiff Macklem sounded a new tone on inflation.  He said the Bank will stand up to it, and not just let inflation manage itself.

Inflation in Canada is running at about 4.4%, more than double the Bank’s target, and it is forecast to rise even higher.  Up until now Macklem has called it “transitory”, suggesting inflation would sort itself out and return to normal, once post-pandemic labour shortages and supply bottlenecks ease.

In his comments after the rate setting, Macklem revealed the Bank is now forecasting that inflation will be worse, and will last longer, than originally anticipated.  And, he said, the central bank is prepared to step in to control it.

“I want to assure you that inflation is not going to stay as high as it is today, even if it is going to take somewhat longer to come down. The Bank of Canada is committed to ensuring that price increases don’t become ongoing inflation,” Macklem said.

Along with ending its Quantitative Easing bond buying program, the Bank has also moved up its launch date for rate increases to the “middle quarters” of next year, about three-months earlier than previously stated.

In “central bank speak”: “If there are new developments that are pushing inflation away from our target for longer, I think, yes, you can absolutely expect that we will be continuing to adjust our policy settings to ensure that we will get inflation back to target," said Macklem.