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.”
“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 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.
“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 corporate pricing behaviour: ‘Companies are passing through higher input costs more quickly than usual’
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