1) Bank Of Canada Holds Key Rate Steady At Five Per Cent, Says Too Early To Cut

Courtesy Of Barrie360.com and Canadian PressPublished: Mar 6th, 2024

By Nojoud Al Mallees

The Bank of Canada brushed off questions about rate cuts as it held its policy rate at five per cent Wednesday, arguing inflation is still too high to justify lower borrowing costs. 

Governor Tiff Macklem, who held a news conference after the interest rate announcement, acknowledged that inflation has continued to ease and the economy is weakening.

But he said underlying price pressures are still stubbornly high, prompting the Bank of Canada to keep its guard up.

“With inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of governing council is that we need to give higher rates more time to do their work,” said Macklem.

“We’ve come a long way in our fight against high inflation. But it’s still too early to loosen the restrictive policy that has gotten us this far.”

The governor faced a barrage of questions from journalists on when the central bank might pivot to rate cuts. But Macklem held the line.

“We don’t give forward guidance on our forward guidance,” Macklem said with a chuckle after being asked what signals Canadians could expect from the Bank of Canada ahead of a rate cut, using a term that’s central banker speak for hints about future rate changes. 

While Wednesday’s decision carried no surprises, economists are doubling down on their expectation that the first cut will come through in June.

That’s because they expect the Canadian economy to weaken further under the weight of decades-high interest rates. 

Statistics Canada reported last week the economy grew at an annualized pace of one per cent in the fourth quarter. But that modest growth was largely due to a surge in exports, rather than a rise in domestic activity. On a per-capita basis, both real gross domestic product and consumer spending fell over the last three months of the year. 

Dawn Desjardins, chief economist at Deloitte Canada, said the Bank of Canada is looking for more progress on inflation before pulling the trigger. 

“The bottom line is the economy is moving generally in the direction the bank anticipated. And inflation is not quite where they would like it to be,” she said in an interview. 

Higher interest rates have helped slow the pace of price growth by causing a pullback in spending in the economy. Canada’s inflation rate dropped to 2.9 per cent in January, falling back within the Bank of Canada’s one-to-three per cent target range.

However, rapidly rising housing costs are standing in the way of getting inflation down even lower. In January, shelter prices were 6.2 per cent higher than they were a year ago. 

The Bank of Canada has continued to point out the outsized effect housing costs are having on inflation. But Macklem said it’s not the sole issue driving the central bank’s decision-making. 

“Yes, shelter price inflation — it is the biggest contributor to inflation right now. It’s certainly weighing on our decisions,” Macklem said. “Having said that, our target is for total CPI inflation.”

The governor was quick to point out that inflationary pressures are still widespread in the economy, meaning housing costs are not the central bank’s only problem. 

Its preferred core measures of inflation, which strip out volatility in prices, are still running between three and 3.5 per cent.

Macklem also noted that almost half of the consumer price index components are currently rising at a pace above three per cent. In more normal inflationary times, only about a quarter of CPI components will rise that quickly.

Given ongoing risks that inflation may continue to be stubborn, the Bank of Canada has been clear it doesn’t want to move too soon, only to have to reverse course later.

“We don’t want to keep monetary policy this restrictive for longer than we have to,” Macklem said. “But nor do we want to jeopardize the progress we’ve made in bringing inflation down.”

Given the Canadian economy is not in free fall, TD’s director of economics James Orlando said the central bank is in no rush to cut rates. 

“With core rates of inflation tracking around the mid-three-per-cent level, the bank can justify waiting longer. Luckily the central bank has been gifted a little more time to wait. Economic growth eked out small, but positive, growth to end 2023,” he said in a client note. 

“With effectively no pressure for the BoC to respond, it can sit back and wait for a couple more inflation reports to roll in.”

2) Economy Adds 41,000 Jobs In February, But Employment Gains Lag Population Growth

Courtesy Barrie360.com and Canadian PressPublished: Mar 8th, 2024

By Nojoud Al Mallees

The Canadian economy added 41,000 jobs in February as employment gains continue to lag strong population growth in the country. [Note from Patricia: We are approximately 1/10th the size of the U.S. who added a surprise 275,000 jobs last month…. ]

The federal agency’s labour force survey released Friday says the unemployment rate ticked up to 5.8 per cent last month.

Job gains, which were driven by full-time employment, were spread across several industries in the services-producing sector. The strongest employment growth was in accommodation and food services.

High interest rates are putting a drag on the economy as consumers pull back spending, causing a slowdown in sales for businesses. But strong population growth appears to be offsetting some of those effects, including in the labour market.

“Certainly, that overwhelmingly large rise in full-time jobs is quite impressive,” said BMO chief economist Douglas Porter in an interview. 

“(But) it’s quite clear also that the numbers are being heavily influenced by the incredibly rapid population growth we’re seeing.” 

High population growth has added more consumers and workers to the economy, allowing for ongoing job gains in the country.

But other measures of employment paint a weaker picture of the labour market.

Statistics Canada has been putting more emphasis on the employment rate in its reports recently to capture whether job gains are keeping up with population growth.

The federal agency notes in Friday’s report that the employment rate – which represents the proportion of Canadians aged 15 years and older who are employed – fell for a fifth consecutive month in February.

That’s the longest period of consecutive decreases since the six-month period ending in April 2009.

Porter says the decline in the employment rate is also being influenced by the greying population. 

“At the same time as we have this very rapid population growth and immigration growth, we’ve also got, of course, a lot of people who are hitting the age 65 every single month,” he said.

Meanwhile, wages continue to grow rapidly in Canada. Average hourly wages were up five per cent from a year ago, down from a rate of 5.3 per cent in January.

Economists reacting to Friday’s jobs report say it shouldn’t move the needle for the Bank of Canada.

The central bank, which is holding its key interest rate at five per cent, is widely expected to begin lowering its benchmark rate in June. 

On Wednesday, governor Tiff Macklem was tight-lipped about the future path of interest rates.

“With inflation still close to three per cent and underlying inflationary pressures persisting, the assessment of governing council is that we need to give higher rates more time to do their work,” said Macklem in a news conference.

“We’ve come a long way in our fight against high inflation. But it’s still too early to loosen the restrictive policy that has gotten us this far.”