By Paul Vieira
In efforts to temper economic activity and alleviate inflationary pressures, higher interest rates have shown some success. However, the Bank of Canada remains unsatisfied with the progress towards achieving a sustainable downward trend in inflation, according to a senior central bank official.
Deputy governor Toni Gravelle observed that Canada's economy is currently experiencing a state of equilibrium, as evidenced by lackluster growth, increased unemployment, and slowing inflation. In October, total inflation decelerated to 3.1%, while short-term annualized core inflation, which excludes volatile items such as food and energy, reached approximately 3%. The central bank's objective is to set interest rates in order to achieve and maintain a 2% inflation rate, which is the midpoint within the target range of 1% to 3%.
Gravelle emphasized that although there was encouraging improvement in inflation measures in October, it is crucial to bear in mind that this progress is restricted to a single month. Further advancements need to be observed before reaching satisfactory levels.
He also highlighted that services inflation, excluding shelter costs, has decreased from 4% earlier this year to 2.3% in October. "We have made significant strides in restoring price stability, but we still have more work ahead."
Central Bank Official Cautious on Inflation, Not Yet Ready to Cut Rates
In a recent statement, central bank officials expressed their reservations about the inflation situation, stating that they haven't observed sufficient data to be confident that core inflation is on a sustainable path towards the desired 2%. This indicates that any consideration of rate cuts is premature at this point. These remarks, provided by Gravelle, shed more light on the Bank of Canada's policy-rate decision and accompanying statement made on Wednesday. It was decided that the policy rate would remain unchanged at 5%.
The statement highlighted concerns about potential upside risks in the inflation outlook and stated that officials would be open to increasing rates if necessary. This point was reiterated by Gravelle again on Thursday, emphasizing the central bank's preparedness to further raise the policy rate.
Economists at TD Securities analyzed Gravelle's comments and suggested that he was trying to counter trading activities in the overnight-index swap market. Investors in this market were predicting interest-rate cuts in 2024 of at least one percentage point. According to TD Securities, Gravelle's statement had a more cautious tone than the December policy statement, as he downplayed the significance of the progress made in September and October data regarding inflation trends.
It is important to note that November's inflation data is set to be released on December 19th.
The surge in interest rates and inflation has made homeownership more expensive, resulting in a decline in home prices. Zurich and Tokyo are the most overvalued...
Syngenta Group, acquired by ChemChina in 2017, has delayed its IPO on Shanghai's main market due to market conditions. The IPO, with a target fundraising amount...
Apple Inc. has experienced declines in stock price, patent disputes, and analyst downgrades in early 2024. The company's market capitalization has decreased, an...