Bank of Canada Monetary Policy Report for July 2022

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The overview from the monetary policy report

Inflation around the world has continued to rise quickly, largely due to increases in the prices for energy and food. Global supply chain challenges have also persisted, and when combined with strong demand, this has led to a broadening in price pressures.

Global growth is slowing due to Russia’s aggression in Ukraine and continued supply chain disruptions. As well, high inflation and monetary policy tightening in many countries are beginning to moderate demand.

With the removal of most public health restrictions in Canada, economic activity in hard-to-distance service sectors has rebounded strongly. With the rest of the economy already more than fully recovered, the Canadian economy is now clearly in excess demand. While high inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term in Canada is largely the result of international factors, domestic demand pressures are becoming more prominent, and price pressures have broadened.

In response to high inflation and rising inflation expectations, the Bank of Canada is raising interest rates. This will temper borrowing and spending, slow demand growth, help anchor inflation expectations and ultimately reduce inflationary pressures.

Key messages ƒ

• Inflation continues to rise, and price pressures are broadening. Consumer price index (CPI) inflation will average close to 8% in the middle quarters of 2022. Survey responses show that consumer and business expectations about inflation over the next two years have moved higher. ƒ
• The Canadian economy is overheated, and labour markets are tight. The unemployment rate is at a series low, and elevated job vacancies and widespread labour shortages are pushing up wage growth. With strong demand for their products, businesses are passing through higher input and labour costs to consumer prices. ƒ
• With global growth moderating and higher interest rates dampening domestic spending, growth in Canada is projected to slow from 3½% in 2022 to 1¾% in 2023 and 2½% in 2024. This allows supply to catch up with demand, reducing domestic inflationary pressures. ƒ
• Domestic price pressures are expected to abate, global supply chain problems are anticipated to resolve gradually, and energy prices are projected to decline. Inflation in Canada is anticipated to decrease to roughly 3% by the end of 2023 and return to the 2% target by the end of 2024. ƒ The Bank is guarding against the risk that high inflation becomes entrenched because if it does, restoring price stability will require even higher interest rates, leading to a weaker economy.

Forecasts show GDP estimates:

• revises GDP growth for 2022 down to to 3.5% from 4.2% in April
• Sees GDP growth of 1.8% in 2023 vs. 3.2% previously
• Sees GDP growth of 2.4% for 2024 vs. 2.2% previously

On inflation:

• sees inflation decline to roughly 3% by the end of 2023, returning to 2% target by the end of 2024
• In at 2022 sees inflation averaging 7.2% vs. 5.3% in April
• Forecasts 4.6% in 2023 vs. 2.8% in April
• Sees 2.3% in 2024 vs. 2.1% in April