The Bank of Canada has been about as clear as it can be about the future course for interest rates. They are not likely to go up, but they will not be coming down anytime soon either.
During an appearance before the Commons Finance Committee last week Governor Tiff Macklem repeated and refined many of the statements he made during the Bank’s rate announcement on January 24th.
Macklem told the politicians the Bank is pleased with the decline in inflation but it needs “assurance” that inflation is trending back toward 2.0%.
“So yes, you do want to start lowering interest rates before you’re all the way back, but you don’t want to lower them until you’re convinced…that you’re really on a path to get there, and that’s really where we are right now,” he said.
Inflation ticked back up to 3.4% in December from 3.1% in October and November. Core inflation, the Bank’s preferred measure, remains stuck at about 3.5%.
Macklem also acknowledged that “Shelter Inflation” has been a key contributor to core inflation. But he resisted calls to take shelter costs out of the calculation. Macklem said removing shelter, which some people see as a temporary anomaly, would require other items, which are reducing inflation, to be dropped as well. That would leave core inflation pretty much where it is right now.
Macklem encouraged the politicians to take steps to increase the supply of shelter to meet the high and growing demand.