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 1% 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% in January, falling back within the Bank of Canada’s 1% to 3% 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% 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.”