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Governor Stephen S. Poloz discusses key issues involved in the Governing Council’s deliberations about the policy rate decision and the MPR.

Inflation remains close to 2%, and past cuts in interest rates are boosting economic growth in Canada. At the same time, the threat of wide-ranging tariffs by the new US administration has increased uncertainty.

This 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.

Governor Tiff Macklem speaks about the effectiveness—and limitations—of monetary policy. He highlights how raising and lowering the policy interest rate ultimately keeps inflation low, stable and predictable, despite significant shocks to the economy.

We are experiencing a commodity super cycle. Throughout the current boom, the scale of price increases has been higher, and the range of affected commodities broader, than in previous upturns. Since 2002, grain and oilseed prices have more than doubled, base metals prices have tripled, and oil prices have quadrupled.

Discussion of recent research into three ways that oil-futures prices can improve our understanding of current conditions and future prospects in the global market for crude oil; inflation expectations and the conduct of monetary policy: a review of recent evidence and experience; examination of the influence of various forms of economic uncertainty on the performance of different classes of monetary policy rules; how, when, and why such revisions to many important economic variables occur.

Three major interrelated global developments are having a profound impact on the Canadian economy and making the outlook more uncertain than it was at the time of the July Monetary Policy Report Update.

In 1991, the Bank of Canada and the Minister of Finance agreed on an inflation-control target framework to guide Canadian monetary policy. The agreement has been renewed several times since, most recently in 2021.

Before the outbreak of the war in the Middle East, the Canadian economy was evolving as expected. Since the war began, oil prices have risen, pushing inflation up, and the outlook has become more uncertain.

Survey results suggest that consumers’ inflation expectations declined slightly in the fourth quarter of 2019. Consumers’ expectations for their wage growth were largely the same as in the previous survey. Consumer expectations for house price growth went up somewhat in Canada.