Wed Sep 18 01:35:27 UTC 2024: ## Bank of Canada Cautious Despite Inflation Returning to Target
**Toronto, Canada -** While Canada’s inflation rate has returned to the Bank of Canada’s target of 2%, Senior Deputy Governor Carolyn Rogers cautioned against declaring victory. Speaking at a Bloomberg New Voices event, Rogers emphasized the need for continued progress on core inflation measures, which remain elevated.
“There’s still work to do,” Rogers stated, stressing that the central bank needs to “stick the landing.”
The consumer price index rose 2% year-over-year in August, the slowest rate since early 2021. However, core inflation measures, which exclude volatile items, are still averaging 2.35%, indicating that price pressures remain a concern.
Rogers underscored the bank’s desire to see a “sustainable” return of headline inflation to around 2%, acknowledging that bumps along the way are expected.
The Bank of Canada has been aggressively raising interest rates since March 2022 to combat inflation. The benchmark overnight rate has risen from 0.25% to 5% in under 18 months, a significant effort that has contributed to the recent decline in inflation. However, the central bank is now increasingly concerned about a potential economic slowdown, with a focus on rising unemployment and the need to stimulate growth.
While the bank has already reduced rates three times since June, bringing the overnight rate to 4.25%, further cuts are anticipated. Economists are observing growing weakness in the labor market, prompting calls for more aggressive rate reductions.
Governor Tiff Macklem has hinted that the central bank could consider a larger-than-usual 50-basis point cut in the upcoming rate decision on October 23rd, depending on inflation and economic data. However, a pause in cuts is also a possibility if growth remains strong or inflation proves persistent.
Frances Donald, RBC’s new Chief Economist, emphasized the importance of the economic cycle’s next phase, highlighting that rate cuts are providing relief and are expected to further support the economy by 2025.
The Bank of Canada expects inflation to slow to 2.3% year-over-year in the third quarter but warns of potential upward pressure in late 2024 due to base effects.
The central bank’s continued focus on inflation and its impact on the Canadian economy will be a key factor in the coming months as policymakers navigate the delicate balance between managing inflation and supporting growth.
First Piper 