(Bloomberg) — The Bank of Canada’s second-in-command said policymakers still want to see more progress on core inflation measures, even with the primary measure of price pressures back to the central bank’s 2% target.
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Senior Deputy Governor Carolyn Rogers, speaking at a Bloomberg New Voices event in Toronto, said that while cooling inflation is “welcome news” for Canadians, it’s not yet time to declare victory.
“There’s still work to do,” she said. “We’ve got to stick the landing.”
On Tuesday, Statistics Canada reported that the consumer price index rose rose by 2% in August on a yearly basis — the slowest rate of increase since early 2021. The central bank’s two preferred core inflation measures also eased but are still elevated, averaging 2.35% on a yearly basis from 2.55% a month earlier.
Those core inflation measures exclude items that had extreme price movements in any given month and might distort the CPI.
Rogers said officials want to see price pressures cool further, adding that they’re looking for a “sustainable” return of headline inflation to around 2% — and that they expect bumpiness along the way. There’s a slew of economic data to come before the bank’s next rate decision on Oct. 23, she noted.
The return to more normal inflation levels is a win for policymakers. Starting in March 2022, the central bank raised its benchmark overnight rate from 0.25% to 5% in less than a year and a half to tame surging consumer costs.
So far, it’s worked, with help from slower global economic growth, repaired supply chains and moderating energy prices. Canada’s inflation rate has fallen 6.1 percentage points since the peak, which was 8.1% in June 2022. That’s the fastest deceleration since the 1980s.
Now, the central bank is increasingly concerned about the risk of a deeper economic slowdown, which has led officials to focus more on rising unemployment and a desire to boost growth.
“It’s not an absolute tilt to the downside risks, but definitely we’re in a period where the risks are more balanced,” Rogers said.
Fed’s Tipping Point
Officials have already lowered rates three times since June, bringing the overnight rate to 4.25%, and they’ve signaled more cuts to come. Economists see mounting weakness in the labor market, and some of them are calling on policymakers to start making bigger moves to bring down borrowing costs.
Earlier this month, Governor Tiff Macklem repeated that officials may cut rates by 50 basis points or more in one decision, if inflation and the economy slowed faster than expected. But he also said they could decide to pause cuts if growth is stronger or inflation is persistent.
Traders in overnight swaps have upped their bets for a larger-than-normal reduction in October. Markets placed the odds of a 50-basis point cut at more than 50% on Tuesday.
The magnitude of short-term rate cuts is less important to many businesses than how the next phase of the economic cycle plays out, Frances Donald, Royal Bank of Canada’s new chief economist, said in a separate interview at the Bloomberg event.
Rate cuts are bringing relief “and by 2025 we should start to see that support coming through the system,” she said, noting that the US is also at a “tipping point” with Federal Reserve officials poised to lower rates from a two-decade high on Wednesday.
In its July monetary policy report, the Bank of Canada forecast inflation to slow to a 2.3% yearly pace in the third quarter. Policymakers have warned that so-called base effects — the impact of price changes that happened a year earlier — are likely to nudge inflation higher at the end of 2024.
Rogers, the first non-economist to hold the senior deputy governor position in the modern era, joined the bank in December 2021 when the policy rate was at 0.25%. She previously had a long career in financial regulation, including as secretary general of the Basel Committee on Banking Supervision.
–With assistance from Alix Steel and Derek Decloet.
(Updates with video clips and additional information on core CPI measures. An earlier version of this story corrected a reference on the date of the central bank’s next meeting.)
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