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Press conference following the release of the Monetary Policy Report.

Press conference following the release of the Monetary Policy Report.

Governor Stephen S. Poloz discusses his long-term economic preoccupations now that the Canadian economy has nearly completed its journey home.

This monthly newsletter features the latest research publications by Bank of Canada economists including external publications and working papers published on the Bank of Canada’s website.

09:45 (ET)
On eight scheduled dates each year, the Bank of Canada announces the setting for the overnight rate target in a press release explaining the factors behind the decision. Four times a year, Governing Council presents the Monetary Policy Report: the Bank’s base-case projection for inflation and growth in the Canadian economy, and its assessment of risks.

The theme of this event is "Policy Coordination in an Integrated Global Economy." It seems as if the idea of policy coordination is making a comeback these days.

In the fourth-quarter Business Outlook Survey, reports of supply chain bottlenecks and labour shortages remain elevated. Firms cited robust growth in demand, although those offering hard-to-distance services still had sales below pre-pandemic levels, even before the Omicron variant began spreading broadly. These factors are resulting in upward pressures on prices over the next year.

For several decades, the prices of services have been rising more rapidly than the prices of goods in Canada and the other major industrialized countries. In 2002, this gap between the growth rates of these two components of the consumer price index (CPI) widened considerably, leading researchers to ask if this was the beginning of a trend. Analysis reveals, however, that the gap is based on short-term dynamics and that it appears to be independent of the trend in the development of the overall price level. Evidence also shows that the gap is eventually reabsorbed. The authors examine a number of potential causes for the prices of services to rise faster than those of goods. These include the more rapid pace of productivity growth in the goods sector, the greater openness of goods to foreign trade, and stronger growth in the demand for services.

These are difficult economic times, with the Canadian economy being buffeted by an intense and synchronized global recession. In recent months, that global recession has been exacerbated by delays in implementing measures to restore financial stability around the world.

The Bank of Canada today raised its Bank Rate by ¼ of one percentage point to 5 per cent.