The Bank of Canada on Monday unveiled an agreement with the federal government to keep its inflation target unchanged at 2% and said it could maintain interest rates lower for longer if needed to help keep employment at optimal levels.
The decision was set out in a new five-year monetary policy framework between the central bank and the finance ministry that takes effect on Jan. 1. The inflation target has been set at the 2% midpoint of a 1%-3% control range for the last 30 years.
“Maintaining a stable environment for the prices Canadians pay is the paramount objective for Canada‘s monetary policy,” Finance Minister Chrystia Freeland said in a news conference.
“This is about continuity, and about continuing to do what we know works.”
The central bank and the ministry decided against a major shift in monetary policy strategy similar to the one adopted by the Federal Reserve last year. Reuters reported the details https://www.reuters.com/markets/us/exclusive-bank-canada-policy-framework-leave-inflation-target-unchanged-source-2021-12-09 of the announcement last week.
The Bank of Canada slashed its key interest rate to a record low of 0.25% last year and says it could start hiking it as soon as next April as the economy recovers from the COVID-19 pandemic. Annual inflation hit an 18-year high of 4.7% in October.
The central bank said major forces, such as demographics and technological change, were having profound effects on the labor market and making it harder to judge maximum sustainable employment – the level beyond which inflationary pressures arise.
It said it would use the flexibility of the 1%-3% target range to seek maximum sustainable employment when conditions warranted and also deal with structurally low rates, “including sometimes holding its policy interest at a low level for longer than usual.”
‘LARGELY A CONTINUATION’
Analysts noted the bank has taken a flexible approach to cope with the disruptions caused by the pandemic, allowing the labor market and the economy to rebound while supply-chain bottlenecks and rising energy prices pushed up overall costs.
“This is largely a continuation of what they are already doing, in a sense codifying the approach that the bank has been taking during the pandemic,” said Josh Nye, senior economist at RBC Economics.
“It’s not going to change our forecasts for when the Bank of Canada begins to raise interest rates.”
Bank of Canada Governor Tiff Macklem said the central bank was focused on bringing inflation back down to target without choking off the economic recovery.
Doug Porter, chief economist at BMO Capital Markets, said the main message was that the Bank of Canada retained the right to use a lot of flexibility in setting rates.
“When the economy’s under stress, we could have rates low for very long stretches,” he said.
The Bank of Canada, however, acknowledged that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time.
It said neutral interest rates were likely to be lower than in the past, which meant central banks would have less room to cut rates when faced with economic shocks.
(Additional reporting by Fergal Smith and Nichola Saminather in Toronto and Dale Smith in Ottawa;Editing by Matthew Lewis and Paul Simao)
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
