Bank of Canada deputy governor Sharon Kozicki said she sees evidence interest rate increases are working to slow inflation. Read more.
“Recent data have provided evidence that our policy rate increases are slowing demand. Household credit growth has eased as the impact of higher rates restrained spending among a wide range of borrowers,” she said. “And we are mindful that past increases in interest rates will continue to weigh on activity.”
Kozicki’s comments suggest policymakers are still likely still comfortable staying on the sidelines after holding rates steady at five per cent on Sept. 6, opting to wait and assess the impact of their aggressive tightening cycle. Despite the acceleration in headline inflation and persistent underlying price pressures, the central bank is betting a continued softening of economic growth will weigh on consumer prices.
“Both inflation and inflation expectations have come down, and excess demand in the economy is easing. And our past policy actions will continue to have an effect as they work their way through the economy,” she said.While measures of core inflation have eased, recent consumer price index data indicate that inflationary pressures are still broad-based, she said, adding that the CPI-trim rate, which has been excluding mortgage interest costs for more than a year, has been at about 3.
“We don’t set our policy based on what is happening to one subset of households or to the price of any one good or service. But we do our best to understand what is going on at a detailed level,” she said. “This helps us do a better job of forecasting where the economy is likely to be headed and helps us balance risks.”
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