Bank of Canada Governor Says Inflation Expected to Near 2 Percent by End of 2024

Bank of Canada governor Tiff Macklem holds a press conference at the Bank of Canada in Ottawa after release of the bank’s 2023 financial system review on May 18, 2023. The Canadian Press/Patrick Doyle

The governor of the Bank of Canada (BoC) says he expects the country’s inflation rate to be close to the targeted 2 percent by late 2024 but he didn’t commit to lowering the interest rate.

Tiff Macklem made the comments during his year-end speech at the Canadian Club in Toronto on Dec. 15.

“This was our second year of monetary policy tightening and that work is paying off. The economy is no longer overheated, and that is relieving inflationary pressures. Inflation’s come down from just over 8 percent in the middle of last year to 3 percent in October—3.1 percent in October, to be precise,” Mr. Macklem said.

“The 2 percent inflation target is now in sight. And while we’re not there yet, the conditions increasingly appear to be in place to get us there. The economy is no longer in excess demand and underlying inflationary pressures are easing in much of the economy.”

The central bank has raised interest rates 10 times since early 2022, leaving it at 5 percent over the past six months. Mr. Macklem did not commit to lowering the interest rate in the near future.

“It’s still too early to consider cutting our policy rate until we see evidence that we are clearly on a path back to 2 percent inflation.”

The governor acknowledged that the interest rate hikes have been difficult on Canadians, particularly with the rising cost of food and shelter.

“We are in the tough phase of the monetary cycle. Inflation has come down, but it’s still too high. And the increases in interest rates that are needed to relieve price pressures are squeezing many Canadians.”

A Dec. 5 report from research organization Nanos found that inflation (18 percent) topped the list of worries of Canadians, followed by jobs and the economy (13 percent), and housing (11 percent).

The BoC’s next interest rate announcement is Jan. 24, 2024.

Housing Cost Increases

Mr. Macklem said shelter costs have risen about 7 percent. While part of the reason was higher interest rates that are impacting mortgages, another cause was a lack of housing to meet demand, he said.

“Canada’s housing supply has not kept up with growth in our population, and higher rates of immigration are widening the gap.”

However, though Canadians are feeling the pressure, they are still paying their mortgages, he said during a question-and-answer session that followed his speech.

“Mortgage delinquencies and late payments, they were very low during COVID. They have come back up but they are at or below pre-COVID levels, which is actually pretty low.”

An Abacus survey found that 42 percent of Canadians, or two in five, are paying 40 percent or more of their monthly income to housing, which is over the recommended threshold of 39 percent set by the Canadian Mortgage and Housing Corporation.

The survey also found that nearly half of Canadians (49 percent) have a pessimistic view of their financial and personal well-being going into 2024.

Total consumer debt increased by $80.9 billion over the past year, bringing it to $2.4 trillion, according to Equifax, a data and analytics company focusing on the credit industry. Over the past year, mortgage debt increased by 1.7 percent and non-mortgage debt growth was 1.2 percent.

Government Spending Contributing to Inflation: Report

A Nov. 17 report from Scotiabank said that government spending is responsible for at least 2 percent of the 4.75 interest rate hike the BoC has taken.

Titled “To Spend or Not to Spend? That is the Monetary Question,” researchers looked at the rate of spending at all levels of government, including financial support Ottawa offered during the COVID-19 pandemic.

“Rising government consumption and the pandemic transfers account for roughly 200 basis points of the 475 basis points increase in the Bank of Canada’s policy rate,” the report says.

A basis point is the unit of measurement for interest rates, with one basis point equal to 0.01 percent.

While Mr. Macklem previously expressed concern over government spending, his tone softened at his year-end address.

“[Government] spending isn’t really helping us get rid of inflationary pressures. It’s not slowing growth. It’s not relieving inflationary pressure, but it’s not really getting in the way either. Government spending is growing at about the same level as supply side of the economy.”

He added that government spending forecasted for 2024 “could start getting in the way of bringing inflation down … we will be watching that closely.