The Bank of Canada held its key overnight interest rate at five per cent for the fourth consecutive time, as inflation remains higher than desired and economic growth has not slowed enough to warrant a cut.
“The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” the central bank said in a Jan. 24 statement.
The central bank did, however, signal a shift in discussions.
“With overall demand in the economy no longer running ahead of supply, governing council’s discussion of monetary policy is shifting from whether our policy rate is restrictive enough to restore price stability to how long to stay at the current level,” Bank of Canada governor Tiff Macklem said during a Jan. 24 news conference.
However, he said this doesn’t mean the central bank has ruled out rate increases, if necessary.
“We may still need to raise rates,” Macklem said, echoing caution that has characterized previous hold decisions.
Nevertheless, many economists expect the Bank of Canada will begin to trim interest rates later this year after a record run-up since early 2022, given Canada’s tepid economy and the central bank’s own outlook.
In response to questions from media about the timing of a potential cut, which market signals and some economists anticipate will come as early as April or June, Macklem declined to spell out a timeline.
“In the months ahead, we will continue to see this push and pull” between economic indicators, he said.
Moreover, he said rate hikes this past summer are still working their way through the system.
“We need to give these higher rates time to do their work,” Macklem said.
Total CPI inflation stood at 3.4 per cent in December 2023, above the central bank’s target rate of two per cent, with shelter costs the biggest contributor to above-target inflation.
One metric Macklem said could cause rates to be raised again, rather than lowered, is an unexpected surge in house prices. This is not in the Bank of Canada’s base case projection for inflation and growth in the Canadian economy, he said.
The decision to hold rates on Jan. 24 drew a forecast of more activity in the real estate market from Christopher Alexander, president of RE/MAX Canada, who called the Bank’s decision “a welcomed one” for many Canadian homebuyers.
“We might see a boost in housing market activity, especially for those that have been taking a ‘wait and see’ approach and are waiting for the right time to re-enter the market,” Alexander said. “This could very likely result in an active first quarter of 2024 and a strong spring market, reminiscent of what we experienced at the top of the pandemic in early 2020.”
James Orlando, senior economist at Toronto-Dominion Bank, said while the central bank is not ready to set timing on a rate cut, markets are signalling it happening in either April or June.
We echo this sentiment,” he said in a note after the Bank’s announcement.
“(With) the realization that the BoC can’t set policy just based on elevated shelter inflation, it is clear that the central bank is getting ready to signal a rate cut in the coming months,” he wrote.
Part of the reason so many are expecting a cut is Canada’s tepid economic growth. And while the global economic picture is brighter, Bank of Canada officials have cited ongoing geopolitical risks, with wars in the Middle East and Russia-Ukraine as well as shipping disruptions in the Red Sea, as a concern.
“Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted.”
But while labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs are being created at a slower rate than population growth, wages are still rising by around four to five per cent.
The Bank of Canada expects economic growth to strengthen gradually around the middle of 2024.
“In the second half of 2024, household spending will likely pick up and exports and business investment should get a boost from recovering foreign demand,” the central bank said in the statement, adding that spending by governments will contribute materially to growth through the year.
As for global growth, the Canada’s central bank forecasts global GDP growth of 2.5 per cent in 2024 and 2.75 per cent in 2025.
“With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025,” the Bank of Canada said in its Jan. 24 statement.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Press. All rights reserved.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
The Canadian Press. All rights reserved.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
The Canadian Press. All rights reserved.
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