Signs of progress in the Bank of Canada’s inflation fight are “very encouraging” to monetary policymakers, a deputy governor at the central bank says, but that’s not the only thing officials are looking at when gauging their interest rate path.
The annual rate of inflation continued to decline in February, falling 0.1 percentage points to 2.8 per cent last month. The easing came as a surprise to most economists who had expected inflation to tick up instead.
Toni Gravelle, deputy governor at the Bank of Canada, was asked after a speech in Toronto on Thursday how the central bank is thinking about the unexpected easing in price pressures as it gears up for its next policy rate decision on April 10.
“The number came out, very encouraging, but it’s one number,” he said.
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Gravelle said the Bank of Canada is going to look “under the hood” of the latest consumer price index figures to see how underlying inflation is trending alongside other indicators in the economy.
The Bank of Canada’s preferred measures of core inflation cooled in February but remain above the three per cent mark. While grocery price hikes also showed signs of easing, gas prices rose, and shelter inflation accelerated again in the month.
After Tuesday’s release of the February inflation figures, many economists firmed up their bets for interest rate cuts to begin in June.
The Bank of Canada’s deliberations from its most recent interest rate decision on March 6 were released on Wednesday and showed the governing council expects rate cuts to be in the cards sometime this year, provided the economy eases, according to its forecasts.
The central bank is also set to release a new monetary policy report with revised outlooks for inflation and economic growth when it announces its April rate decision.
Gravelle was speaking to the CFA Society in Toronto on Thursday to discuss normalizing the Bank of Canada’s balance sheet.
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