Bank of Canada’s governor Tiff Macklem has acknowledged that a slowing economy is a necessary process to cool down an overheated economy. Speaking at an event in Quebec City on Tuesday, Macklem said that higher interest rates are limiting consumer spending on big-ticket items like vehicles, furniture, and appliances, thereby slowing the economy. The Bank of Canada has recently undergone one of its fastest monetary policy tightening cycles to cool down the domestic economy and has raised its key interest rate 8 consecutive times from near-zero to 4.5 per cent.
Macklem stated that the Bank of Canada will be ready to raise interest rates further if inflation remains stubborn. He also highlighted that for inflation to reach its 2% target, wage growth has to slow down along with other prices. The Bank of Canada predicts that the annual inflation rate will reduce to 3% by mid-year and eventually reach 2% in 2024.
Despite wages growing rapidly in the past months, they still lag behind the rate of inflation. The Bank of Canada forecasts a slowdown in the rate of inflation, which economists have noticed in recent months.
In conclusion, Macklem is confident that the rate hikes implemented so far will be sufficient to bring inflation back to its target level, while being prepared to take additional measures if needed.
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