Tiff Macklem: Monetary Policy Decision
Opening statement by Mr Tiff Macklem, Governor of the Bank of Canada and Ms
Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, at the press
conference following the monetary policy decision, Ottawa, Ontario, 4 September 2024.
* * *
Good morning. I'm pleased to be here with Senior Deputy Governor Carolyn Rogers to
discuss today's policy announcement.
Today, we lowered the policy interest rates by 25 basis points to 4.25%. This is the third
consecutive decrease since June.
Our decision reflects two main considerations.
First, headline and core inflation have continued to ease as expected.
Second, as inflation gets closer to target, we want to see economic growth pick up to
absorb the slack in the economy so inflation returns sustainably to the 2% target.
Inflation continues to reflect the push and pull of opposing forces. Overall weakness in
the economy continues to pull inflation down. But price pressures in shelter and some
other services are holding inflation up. Since the July Monetary Policy Report , the
upward forces coming from prices for shelter and some other services have eased
slightly. At the same time, the downward pressure coming from excess supply in the
economy remains.
If inflation continues to ease broadly in line with our July forecast, it is reasonable to
expect further cuts in our policy rate. We will continue to assess the opposing forces on
inflation, and take our monetary policy decisions one at a time.
Let me expand on what we're seeing in the economy, and how that played into our
deliberations.
In the second quarter, the economy grew by 2.1%, led by government spending and
business investment. This was slightly stronger than forecast in July. Together with first
quarter growth of 1.8%, this suggests the economy grew by about 2% over the first half
of 2024. That's a healthy rebound from the near-zero growth we had in the second half
of 2023. Our July projection has growth strengthening further in the second half of this
year. Recent indicators suggest there is some downside risk to this pickup. In particular,
preliminary indicators suggest that economic activity was soft through June and July,
and employment growth has stalled in recent months.
The unemployment rate has risen over the last year to 6.4% in June and July. The rise
is concentrated in youth and newcomers to Canada, who are finding it more difficult to
get a job. Business layoffs remain moderate, but hiring has been weak. The slack in the
labour market is expected to slow wage growth, which remains elevated relative to
productivity.
Turning to price pressures, CPI inflation eased further to 2.5% in July, and our preferred
measures of core inflation also moved lower. With the share of CPI components
growing above 3% now around its historical norm, there is little evidence of
broadbased price pressures. But shelter price inflation is still too high. It remains the biggest
contributor to overall inflation, despite some early signs of easing. Inflation also remains
elevated in some other services.
As outlined in our July forecast, inflation is expected to ease further in the months
ahead. It may bump up later in the year as base-year effects unwind, and there is a risk
that the upward forces on inflation could be stronger than expected. At the same time,
with inflation getting closer to the target, we need to increasingly guard against the risk
that the economy is too weak and inflation falls too much.
We are determined to get inflation down to the 2% target, and we want it to stay there.
We care as much about inflation being below the target as we do above. The economy
functions well when inflation is around 2%.
Let me conclude. With continued easing in broad inflationary pressures, Governing
Council decided to reduce the policy interest rate by a further 25 basis points. Excess
supply in the economy continues to put downward pressure on inflation, while price
increases in shelter and some other services are holding inflation up. Governing
Council is carefully assessing these opposing forces on inflation. Monetary policy
decisions will be guided by incoming information and our assessment of their
implications for the inflation outlook. The Bank remains resolute in its commitment to
restoring price stability for Canadians.
With that summary, the Senior Deputy Governor and I would be pleased to take your
questions.