The Bank of Canada expects it will be able to begin cutting interest rates sometime this year, but officials are split on timing, a newly released summary of deliberations shows.Sean Kilpatrick/The Canadian Press
The Bank of Canada’s governing council believes it will be appropriate to cut interest rates this year if the economy develops as expected, although there is disagreement among members on the likely timeline, according to a summary of discussions that took place ahead of the latest rate decision.
Governor Tiff Macklem and his deputies kept the policy rate steady at 5 per cent on March 6, the fifth consecutive hold since last summer.
While they remain concerned about stubborn inflation and the risk of easing monetary policy too soon, Canada’s top central bankers are now openly discussing the timing of rate cuts – albeit with reservations.
“Members agreed that if the economy evolves in line with the Bank’s projection, the conditions for rate cuts should materialize over the course of this year,” said the summary of deliberations, published Wednesday.
“However, there was some diversity of views among Governing Council members about when there would likely be enough evidence that these conditions were in place, and how to weight the risks to the outlook.”
The argument for lowering interest rates was bolstered on Tuesday, when Statistics Canada reported a surprising drop in inflation in February. The consumer price index rose at an annual rate of 2.8 per cent, the second consecutive month that inflation has been back within the Bank of Canada’s 1-per-cent-to-3-per-cent target range.
After that data, Bay Street analysts and traders upped their bets that the central bank will begin lowering interest rates in June, although an earlier cut in April or a later first cut in July are possible.
In some ways the Summary of Deliberations is already stale, given the new inflation data. But it does contain important insights into how central bankers are thinking about the housing market, the correct way of measuring underlying inflation and wage pressures.
In particular, policy makers are nervous about a rebound in real estate, with would-be buyers rushing back into the market in anticipation of rate cuts.
“While house prices continued to fall in January, recent strength in resales could translate into a pickup in house prices and stoke shelter price inflation,” the summary said.
Shelter inflation, which is the biggest driver of overall CPI inflation, is a challenge for the central bank. A big part of it is tied to rising mortgage interest costs, which are the direct result of the bank’s past interest rate hikes. Bank officials have also said that rising rents stem from an imbalance between housing supply and population growth that can’t be fixed by changing interest rates.
That’s led some analysts to suggest the bank should look past shelter inflation when setting interest rates. But the bank does not seem especially keen on this argument.
“Members agreed that if mortgage interest costs were the only component holding up inflation, there could be some capacity to look through them, so as not to unduly restrain economic activity to get headline inflation back to 2 per cent. However, this was not the current situation,” the summary said.
“Most components of shelter inflation, such as rent and expenses related to home ownership (including insurance, taxes and repairs), were still rising significantly in January.”
A second key insight from the document is that bank officials are taking an expansive view of “underlying inflation.”
For months, they’ve said they want to see a sustained drop in underlying inflation before cutting rates, although it has never been clear what metrics they are talking about.
The summary clarified that they are not just looking at CPI-trim and CPI-median, their two preferred measures of core inflation. They are also looking at other measures like CPI excluding food and energy, as well as “the distribution of inflation rates across components of the CPI basket.”
Alongside measures of underlying inflation, Mr. Macklem and his team are watching other indicators, such as the overall balance between supply and demand in the economy, corporate pricing behaviour, inflation expectations and wage growth.
While most of these are trending in the right direction, the pace of wage growth has remained higher than the bank thinks is compatible with 2 per cent inflation. These labour market dynamics, however, are starting to change.
“Governing Council members noted that recent data were beginning to show signs of easing wage pressures,” the summary said, noting that data from Statistics Canada’s Survey of Employment, Payrolls and Hours and National Accounts were lower than in the Labour Force Survey.
The bank’s next interest rate decision is on April 10.
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 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.
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.
