The Bank of Canada held interest rates on March 8, keeping its key policy rate at 4.5%. Read the central bank\u0027s official statement here.
The labour market remains very tight. Employment growth has been surprisingly strong, the unemployment rate remains near historic lows, and job vacancies are elevated. Wages continue to grow at four per cent to five per cent, while productivity has declined in recent quarters.
Inflation eased to 5.9 per cent in January, reflecting lower price increases for energy, durable goods and some services. Price increases for food and shelter remain high, causing continued hardship for Canadians. With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.
Overall, the latest data remains in line with the bank’s expectation that CPI inflation will come down to around three per cent in the middle of this year. Year-over-year measures of core inflation ticked down to about five per cent, and three-month measures are around 3.5 per cent. Both will need to come down further, as will short-term inflation expectations, to return inflation to the two per cent target.
At its January decision, the Governing Council indicated that it expected to hold the policy interest rate at its current level, conditional on economic developments evolving broadly in line with the MPR outlook. Based on its assessment of recent data, Governing Council decided to maintain the policy rate at 4.5 per cent. Quantitative tightening is complementing this restrictive stance.
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