tiff macklem : opening statement before the house of commons standing committee on finance opening statement by mr tiff macklem, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 30 october 2023. * * * good afternoon. i'm pleased to be here with senior deputy governor carolyn rogers to discuss our recent policy announcement and the bank of canada's monetary policy report. last week, we maintained our policy interest rate at 5 %. we held our policy rate steady because monetary policy is working to cool the economy and relieve price pressures, and we want to give it time to do its job. but further easing in inflation is likely to be slow, and inflationary risks have increased. before i take your questions, let me give you some economic and financial context for the decision. since the last time we were here with you, the canadian economy has slowed, and the data suggest demand and supply are now approaching balance. we're now seeing clearer evidence that higher interest rates are moderating spending and relieving price pressures. the economy has entered a period of weaker growth, with growth averaging about 1 % over the last year. growth in gross domestic product ( gdp ) is forecast to remain below 1 % for the next several quarters before picking up in late 2024 and rising to 2½ % in 2025. with the economy expected to move into excess supply this year and with growth anticipated to be weak for the next few quarters, we think there's more inflation relief in the pipeline. we expect inflation in canada to ease gradually and return to our 2 % target in 2025. but we're worried that higher energy prices and persistence in underlying inflation are slowing progress. the effects of higher interest rates on inflation are most evident in the prices of durable goods, like furniture and appliances that people often buy on credit. these effects have also spread to many semi - durable goods - a category that includes things like clothing and footwear - as well as many services excluding shelter. inflation in these categories is now running generally at or below 2 %. price increases for groceries, while still elevated at almost 6 %, have also eased and are expected to moderate further. however, a number of factors are getting in the way of low inflation. higher global energy prices are increasing prices at the pump. and that is pushing headline inflation back up. structural supply shortages in our housing market are boosting prices for shelter. in addition, near

that we released with our january monetary policy report has all the details. 6 totem is designed to capture the impact of terms - of - trade shocks, which is a necessity for analyzing an economy such as canada ’ s that is so heavily engaged in international trade. 7 totem is fed data on everything from consumer spending to household wealth, labour markets, wages, imports and exports, long - and short - term interest rates, business investment and government spending. the model helps us understand how these components interact in response to shocks. it also allows us to explore the linkages between the commodity and non - commodity sectors, as well as how the exchange rate and monetary policy facilitate adjustment to shocks. the totem simulation provided insight into how a fall in commodity prices would affect the broader economy. the shock is complex because it sets in motion several, seemingly nonsynchronous forces : on the one hand, it indicated that our resource sector would shrink and we would earn less income from the rest of the world ; on the other hand, the non - resource sector would gradually begin to expand. at the same time, the canadian dollar would depreciate. a front - loaded restructuring of the resource sector by convention, we assumed for the simulation that commodity prices would remain roughly where they were at the time ( the third quarter of 2015 ), when west texas intermediate was trading at about us $ 46 per barrel, almost 60 per cent below its peak in june 2014. 8 our simulation suggested that, by the end of 2015, the commodity price decline would cause gdp to be 1 per cent lower than it otherwise would have been. and that ’ s what happened. as investment fell, firms cut their workforces. you all likely have friends, neighbours or colleagues who were affected by the cuts. by december of last year, about 30, 000 jobs had been lost in the mining, oil and gas extraction sectors in alberta, saskatchewan, and newfoundland and labrador, a decline of almost 20 per cent from the indeed, around $ 28 billion in oil and gas sector investments, or over 35 per cent, evaporated in 2015. the simulation looked at the adjustment process over a 5 - year period, unlike our forecasts, whose typical projection horizon is 18 to 24 months. j. champagne, n. perevalov, h. pioro, d. brouillette and a. agopsowicz, “ the complex adjustment of the canadian economy to lower commodity prices, ” staff analytical