- We are prepared to raise rates again but don’t want to raise rates than we have to
- The longer we wait, the harder it is likely to be to reduce inflation
- Mon pol might not be restrictive enough to restore price stability
- Bank is concerned that larger-than-normal price increases for goods and services remain broad based
- We are not trying to kill economic growth
- The biggest contribution to the slowing in inflation since the peak last year has been from energy, which accounts for two-thirds of the slowdown
- Today, about 60% of CPI components are rising above 3% and about 45% are rising above 5%
- Looking ahead, we want to see less-generalized price increases as well as a decline in the average price increase.
- The weakness in second-quarter GDP largely reflected a broad-based slowing in consumer spending and a decline in housing activity.
- We will be watching wage growth closely
These are hawkish comments but there is mounting evidence the Canadian economy is slowing and the market thinks that will keep the BOC on the sidelines, with cuts as soon as Q2.
The title of the speech was ‘staying the course’ and you can read it here.
These comments were released 15 minutes early.
Quotable:
The single price increase that is having the biggest impact on CPI inflation is mortgage interest costs, which have gone up as we’ve increased interest rates. They’re about 30% higher than they were a year ago. When you exclude mortgage interest costs, CPI inflation is close to 2½%—which has led some to argue that inflation is effectively back at target. It’s true that if we hadn’t raised interest rates, mortgage costs might be lower today, but inflation throughout the economy would be a much bigger problem for everyone.
I’m not so sure it would be that different.
With past interest rate increases still working their way through the economy, monetary policy may be sufficiently restrictive to restore price stability. However, Governing Council is concerned about the persistence of underlying inflation. Inflation is still too high, and there is little downward momentum in underlying inflation.
That’s the definition of holding with a hawkish bias.
Macklem will take questions after the speech.