This morning, the Bank of Canada announced that they have maintained its key interest rate. The prime rate will remain the same at 7.20%. Therefore, for those who have a variable rate credit product, there will be no changes for payments.
The global economy is slowing down and inflation is easing. Financial conditions have eased, with long-term interest rates showing a decrease from the sharp increases seen earlier. The US dollar has weakened against various currencies, including the Canadian dollar.
In Canada, economic growth stalled in mid-2023. Higher interest rates are clearly affecting spending, with consumption growth close to 0 in the last two quarters. Business investment has been essentially flat, and the labour market is easing. Job creation is slower than labour force growth, job vacancies have decreased, and the unemployment rate has risen modestly. However, wages are still rising by 4-5%. Overall, the data suggests that the economy is no longer in excess demand.
The economic slowdown is reducing inflationary pressures across a range of goods and services. Combined with lower gas prices, this contributed to a decrease in CPI inflation to 3.1% in October. Shelter price inflation has increased due to faster growth in rent and housing costs, along with continued high mortgage interest costs. The Bank's preferred measures of core inflation have been around 3.5-4%, with the October data at the lower end of this range.
Based on this recent data, the Governing Council has decided to hold the rate. The dynamics of core inflation and the outlook for CPI inflation will continue to be assessed, and the Bank is prepared to increase rates further if needed. The focus continues to be on achieving a balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour. The Bank remains committed to restoring price stability for Canadians and achieving the 2% inflation target.
The next Bank of Canada announcement will be on January 24, 2023.
If you'd like to learn more about this recent announcement or would like to know how this affects you, please feel free to reach out to us and we'd be happy to help!