(Ottawa) Bank of Canada Governor Tiff Macklem sees a ray of light at the end of the tunnel. His campaign to curb inflation is beginning to yield convincing results. Statistics Canada’s latest data on the Consumer Price Index (CPI), which rose 4.3% in March, fuels hopes that “we are on the way to our destination.”
That destination is an inflation rate of around 2%, a target that should be reached by the end of 2024, Mr. Macklem said during testimony before the House of Commons Finance Committee.
Statistics Canada confirmed Tuesday that CPI growth continued to slow, falling from 5.2% in February to 4.3% in March. By comparison, the CPI had reached an annual high of 8.1% in June 2022.
With this encouraging data in his pocket before joining the committee, Mr. Macklem told MPs that inflation, which is at its lowest level in 19 months, should continue to decline by the summer to reach 3% and settle at 2.5% by the end of the year.
“We know our job is not done until we restore price stability. Price stability is important because it restores competitive forces in the economy and allows Canadians to plan and invest with confidence that their money will retain its value. This is the destination. We are on the right track and we will stay the course,” he also said.
Over the past year, the Bank of Canada has decreed eight consecutive key rate hikes to reduce demand and curb price growth. The key rate thus went from 0.25% in February 2022 to 4.5% last January. The Bank of Canada has since declared a pause in order to assess the impact of all of its measures on the economy.
According to Mr. Macklem, it will be possible to achieve the objective of bringing the inflation rate back to the 2% target if wage growth moderates and if the pricing practices of companies normalize. It will also be necessary for the growth in the prices of services to slow down.
That said, Mr. Macklem warned that the Bank of Canada may have to raise the key rate again if economic circumstances require it to bring inflation back to the 2% target. He also raised the possibility of interest rates remaining high for longer if necessary to restore price stability.
During his testimony, the Governor noted that the growth of the Canadian economy in the first quarter exceeded Bank of Canada forecasts. The unemployment rate remains close to its historical low and wages continue to rise in a range of 4 to 5%. Macklem said record immigration in recent months has made it a little easier for businesses to fill positions.
“The main risk is a global recession. If tensions resurface in the global banking sector, we could see a deeper global slowdown and a significant drop in commodity prices,” he said.
He stressed that the recent budgets tabled by the federal government and the provinces will not have the effect of fueling inflation too much.
“Our job at the Bank of Canada is to bring inflation back to the 2% target. We are encouraged by the progress made so far. The fact that inflation is expected to come back down to 3% this summer will be a relief for Canadians,” he said.