Bank of Canada’s Tiff Macklem: 10 quotes from today’s interest rate announcement

The Bank of Canada held interest rates steady at 5 per cent on Wednesday in a widely anticipated decision. But central bank also said inflationary risks have increased and repeated that it is prepared to further raise rates in the future, “if needed.”

After 10 interest rate increases during the past year and a half, the bank says supply and demand in the Canadian economy are “now approaching balance” – a prerequisite for stabilizing prices.

Bank of Canada Governor Tiff Macklem and senior deputy governor Carolyn Rogers held a press conference after the rate announcement. Here are 10 key quotes.

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Macklem on food inflation: ‘We should see some continued easing in food price inflation’

“There’s no question, food price inflation has particularly affected lower-income, more vulnerable members of society. This is an important reason why we’ve got to get inflation down.

The long, slow return to normal for food inflation in Canada

“If you look at the input – if you look at agricultural prices – they have come down a fair amount, and you are seeing food price inflation come down with a lag. The latest year-over-year number is about 6 per cent. On a three-month basis, it’s just under 4 per cent. So, I mean what that’s telling you is we should see some continued easing in food price inflation. And I think that will be a relief to all Canadians.”

Macklem on future hikes: If core inflation comes down ‘we probably won’t have to raise interest rates’

“We want to see clear evidence that core inflation is moving down. That will give us more confidence that headline inflation will move down towards our target on a sustainable basis … In assessing that, we have two preferred measures of core inflation – CPI-trim, CPI-median – we’re going to be watching those very closely.”

“There’s a few guideposts we use that we know affect underlying inflation. Those are the balance between demand and supply in the economy. Wage growth at 4 to 5 per cent, with virtually no productivity growth, is not consistent with getting inflation back to our target. Corporate pricing behaviour: When inflation went up a lot, we saw companies were increasing their prices more frequently, and they were increasing them by more. That has started to normalize but it’s still not back to normal.”

“If those things are starting to normalize … we probably won’t have to raise interest rates. But we’ve been very deliberate: we’re leaving the door open to further interest rate increases because there is uncertainty about that, and if we see inflationary pressures persist, we are prepared to raise our interest rate further.”

Macklem on weakness in Canadian dollar: ‘We’ve got to rely more on interest rates’

“What we’re not getting [from high interest rates] is we’re not getting the direct effect of an appreciation to lower important inflation. So that does mean, everything else equal, we’ve got to rely more on interest rates. So that is something we’ve had to take into account.”

Macklem on ‘stagflation’: ‘That’s not where we are now’

“It’s not a word I would use. I grew up in the 1970s. Stagflation to me is a period of high inflation and high unemployment. That’s not where we are now. Inflation is well above our target, it’s too high. But it’s not high like it was in the ‘70s. And the unemployment rate actually is quite low, 5.5 per cent is below historical norms.”

Macklem on government spending: ‘The potential output in the economy is growing’

“Our best estimate is the potential output in the economy is growing at about 2 per cent. So supply in the economy is expanding around 2 per cent. Government spending is growing at 2 per cent or less. It’s not adding more demand. It’s not adding faster demand, and supply is growing. So, it’s not adding sort of undue inflationary pressures.”

“If you look at our forecast in the Monetary Policy Report, what you can see is that when we add up the spending plans in the budgets of all levels of government – provincial, federal – for next year, we expect government spending to grow at about two-and-a-half percent. So, what that means is if all those spending plans are realized, government spending will be adding to demand more than supply is growing. And in an environment where we’re trying to moderate spending and get inflation down, that’s not helpful.”

Carolyn Rogers on housing: ‘There is a structural lack of supply in the Canadian housing market’

“Normally, house prices move pretty lockstep with interest rate increases… As interest rates come down, house prices go up a bit. And they’ll come off as interest rates come back up.”

“We haven’t seen that same dynamic. [House prices] they’ve come off a bit this time … but we’re not seeing the decline in house prices that we would expect.”

“There is a structural lack of supply in the Canadian housing market. So really until we address that, that supply issue, interest rates on their own are not going to help us get back to a housing affordability situation or solution. So we’re really pleased to see the degree of focus that governments are putting on this issue right now.”

Macklem on high energy prices: ‘These increases in oil prices, they tend to go up and then after a period they tend to come back down’

“Typically, we would tend to largely look through [energy price spikes], and the reason for that is that it takes time for monetary policy to work. These increases in oil prices, they tend to go up and then after a period they tend to come back down. Some of the time monetary policy is really working, the shocks going away.”

“However, that’s not the situation we’re in right now. Inflation has been above the target for two years…. Near-term inflation expectations are still above the target… Corporate pricing behaviour is not normal... If we saw evidence that higher energy prices were passing through to broader prices because of higher transportation costs, for example, that would be a signal that that increase in oil prices is starting to feed through the rest of the economy and that would really be something of concern to us.”

Macklem on recession fears: ‘It’s not a recession. It’s low positive growth’

“It’s not a recession, it’s low positive growth. Having said that, if you’re predicting low positive growth, you can’t rule out that … we’re going get some small negative numbers. So, there could certainly be two or three small negative quarters.”

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“When people say the word recession, I think what they have in mind is a steep contraction of output and a large rise in unemployment. That’s not what we’re forecasting. I’ll just close by saying, you know, we’ve been saying for some time that the path to a soft landing is narrow. And in this projection, that path has gotten narrower.”

Macklem on corporate pricing behaviour: ‘Companies are passing through higher input costs more quickly than usual’

“Corporate pricing behaviour is not normal. What we’ve seen is companies are passing through higher input costs more quickly than usual to final prices. So consumers are feeling it right away. Against that environment, we would need to be more cautious than normal about seeing through it. And what we’d be particularly focused on is the impacts on core inflation.”

Tiff Macklem on core inflation: ‘We need to see clear downward momentum in core inflation’

“To be confident the policy rate is high enough to get inflation back to 2 per cent, we need to see downward momentum in our measures of core inflation.”

“Core inflation on a year-over-year basis has come down, but if you look over the last good eight months or so, on a three month basis, there’s really been very little downward momentum. We need to see clear downward momentum in core inflation. And there are a number of indicators that we’re watching closely.”

“We’re going to take our decisions one at a time, based on the best available data and information at the time of that decision.”