On September 4, 2024, a press conference was held to discuss the latest monetary policy decision. The event featured Senior Deputy Governor Carolyn Rogers and included an announcement of a 25 basis point reduction in the policy interest rate, bringing it down to 4.25%. This marks the third consecutive decrease since June.
The decision was influenced by two primary factors: the continued easing of both headline and core inflation, and the need for economic growth to absorb slack in the economy, ensuring a sustainable return to the 2% inflation target.
Inflation is currently being affected by opposing forces. While overall economic weakness is driving inflation down, price pressures in shelter and certain services are keeping it elevated. Since the July Monetary Policy Report, these upward pressures have slightly eased, although downward pressure from excess supply persists.
"If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate," stated officials. They emphasized that monetary policy decisions will be made incrementally based on ongoing assessments of these forces.
In terms of economic performance, the second quarter saw a growth rate of 2.1%, driven by government spending and business investment. This exceeded July forecasts and followed a first-quarter growth of 1.8%, suggesting an approximate 2% growth for the first half of 2024—a significant rebound from near-zero growth in late 2023. However, recent indicators point to potential downside risks for future growth.
The unemployment rate has risen over the past year to 6.4% as of June and July, particularly affecting youth and newcomers to Canada who face greater difficulty finding employment. Business layoffs remain moderate but hiring has weakened, contributing to labor market slack which is expected to slow wage growth despite its current elevated levels relative to productivity.
CPI inflation further eased to 2.5% in July with core inflation measures also declining. Although broad-based price pressures are minimal, shelter price inflation remains high and continues to be a major contributor to overall inflation despite some early signs of easing.
The July forecast anticipates further easing of inflation in upcoming months but acknowledges potential risks such as base-year effects causing temporary increases later this year or stronger-than-expected upward forces on inflation. With inflation nearing its target, there is also concern about economic weakness leading to excessively low inflation.
"We are determined to get inflation down to the 2% target," officials affirmed, emphasizing their commitment to maintaining stable prices for Canadians.
In conclusion, given the ongoing easing of broad inflationary pressures and excess supply's impact on lowering inflation against rising shelter prices, Governing Council opted for another rate cut. Future monetary policy decisions will be guided by new information and its implications for the inflation outlook as part of their steadfast commitment to restoring price stability.
Following this summary, Senior Deputy Governor Carolyn Rogers joined in addressing questions from attendees.
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