蒂夫·麦克勒姆：货币政策在起作用

IwouldliketothankErikEns,CorinneLuu,CésaireMehandPatrickSabourinfortheirhelpinpreparingthisspeech.NotforpublicationbeforeFebruary7,202312:30pmEasternTimeMacklemoftheBankofCanadaQuebecMonetarypolicyatworkGoodafternoonItsapleasuretobehereinQuébectospeaktoyouaboutmonetarypolicyandtheeconomyAsweapproachthethree-yearmarkoftheCOVIDpandemicinCanadawearealsoenteringanewphaseinmonetarypolicy.facedanoverheatedeconomyandhighinflationandwerespondedforcefullyincreasingourpolicyinterestraterapidly.TheyearaheadwillbedifferentInJanuary,aftereightconsecutiveinterestrateincreases,wesaidthatweexpecttoholdthepolicyrateatitscurrentlevel,conditionalontheoutlookforinflation.WearepausingtoassesshowwellourinterestrateincreasesareworkingtobringinflationdownWithinflationabove6%,wearestillalongwayfromthe2%target.Butinflationisturningthecorner.Monetarypolicyisworking.yworkstocontrolinflation.I’lloutlinewhatwe’vedonesofar,whattheimpacthasbeenandwhatweexpectgoingforward.Ialsowanttotalkabouttherisksanduncertaintiesthatwearefacingasweworktogetinflationbacktotarget.CanadiansknowinflationishighTheyseeitatthegrocerystore,whentheypaytheirrentandwhentheygotoarestaurantoronatrip.Andtheyknowthatwe’vemortgagerates,linesofcreditandbusinessloans.sobvioushowhigherinterestratesareworkingtobringinflationdown.SinceMarch,we’veraisedthepolicyrateby4¼percentagepoints.Inrecentmonthsinflationhaslevelledoffandhasbeguntoease.Theconsiderabletighteningwe’vedonewillcontinuetoworkitswaythroughtheeconomy,andthiswillrebalancedemandwithsupplyandslowinflation.Sohowdoesthiswork?ransmissionmechanismOnthefaceofittheBanksapproachtomonetarypolicyissimple.We’reaninflationtargetingcentralbankWehaveainflationtargetandthat’sabout-2-whereinflationhasbeen,onaverage,for30years—atleastuntilthepandemichitWheninflationstraysfromthattargetwehaveonemaintooltogetitbackto—thepolicyinterestrate.Duringtimesofcrisis,wecanuseothertools,butusuallywehaveonetargetandonetool.acticemonetarypolicyismademorecomplicatedbyatleastthreerealitiesFirst,theinfluenceofourpolicyinterestrateoninflationisindirect.Second,itndoverthattimenewdevelopmentswillbuffettheeconomyandinflation.Becausemonetarypolicytakestime,wehavetotrytolookaheadtowhereinflationwillbe.Andthirdbecauseweknownewdevelopmentswillalwaysarise,weneedtobehumbleaboutourforecastsandpreparedtoadjusttochangingcircumstances.omistshaveafancynamefortheprocessthroughwhichchangesinourrateaffectinflationtheycallitthemonetarypolicytransmissionmechanismThismechanismworksthesamewhetherwereraisingratesorloweringthemButsincewevebeenraisinginterestratesletstalkaboutthat(Figure1).Whenweraisethepolicyrate,itimmediatelycostsmoreforbankstoborrowfromeachotherorfromus.Inresponse,theyincreasetheirratesforloansanddeposits.Thatmeansthatpeoplegetahigherreturnontheirsavings.Butitalsomeanstheypaymoreinterestonloans.rinterestcostsdiscouragepeoplefromborrowingThatmightmeanfewerpeopletakeoutamortgagetobuyahome.TheymightdelaybuyinganewcarbecausetheloanismoreexpensiveOrtheymightputoffthatkitchenrenovationorfamilyvacationThat’swhysectorsthataresensitivetointerestrates,likesitsapretty-3-directchannelWealsotypicallyseedemandforbig-ticketitemslikecarsandhouseholdappliancesslowbecausepeopleoftenborrowmoneytobuythem.esalsohaveknockoneffectsfurtherintotheeconomyConstructionslowsdown.Householdswithmortgageshavelessmoneytobuyotherthings.Productionslowsdownasdemandweakens.Businessesmaycuttheirinvestmentplansbecausethecostofborrowinghasgoneupordemandhasfallenoff.nadianinterestratesalsomakeCanadamoreattractivetoforeigninvestorsThatmeansthatifeverythingelsestaysthesame,theCanadiandollarwillriseThismakesforeigngoodslessexpensiveforCanadianstobuy,sothecountryimportslessinflation.AnditmakesCanadianexportsmoreexpensiveinforeignmarkets,slowinginternationaldemandforthesegoodsandservices.Sohigherpolicyratesmeanlowerdemandathomeandfromabroad.AndwithlessdemandgrowthinoureconomyslowsThatdoesn’tsoundlikeagoodthing,butwhentheeconomyisoverheated,itis.Whendemandrunsaheadofsupplyinflationfacesupwardpressure.Slowingtheeconomyletssupplycatchupwithdemand,andthatrelievesinflationarypressures.icyalsoinfluencesexpectationsoffutureinflationThatsimportantbecauseinflationtodayisalsoaffectedbywhatpeoplethinkinflationisgoingtobeinthefuture.Letmeexplain.Ifhouseholdsandbusinessesthinkinflationisgoingtobelow,businesseswillbecautiousaboutraisingtheirpricesoutoffearthattheywilllosecustomers.Andthatkeepsinflationlow.Butwhenconsumersthinkinflationwillbehighbusinessesdon’tworryasmuchthathigherpriceswillscareoffcustomerssotheyaremoreinclinedtoraisethem.That’swhywehavebeensodeterminedtokeepinflationexpectationswellanchoredatthe2%inflationtarget.Wedothatmostlythroughcommunication—bybeingcrystalclearwearecommittedtorestoringpricestability—andbybackingthosewordswithaction.TosummarizetheBankdirectlycontrolsonlythefirststep—thechangeinthepolicyrateTheotherstepsinthetransmissionmechanismarelessdirect,andtheytaketimetohavetheirfulleffect.gherpolicyratessofarWhenwebeganraisingratesinMarch2022,theeconomywasreopeningafterthefourthwaveoftheCOVID-19virus.Asmomentumbuiltinthemonthsthatfollowedandtheeconomymovedclearlyintoexcessdemand,weincreasedratesinunusuallylargesteps.Russia’sunprovokedattackofUkraineinFebruaryalsosentglobalenergyandfoodpricessharplyhigher,whichaddedconsiderablytoinflationinCanada.Wevebeenraisingratesforalmostayearnow—from¼%to4½%.Andweareseeingtheirimpact.owingratesandtheexchangerate-4-hepolicyratehaveraisedborrowingratesforhouseholdsandbusinesses(Chart1).Theaveragefive-yearvariablemortgageraterosefrom1.5%to5.9%betweenJanuary2022andJanuary2023,andtheaveragefive-yearfixedmortgageraterosefrom2.8%to5.1%overthesameperiod.Theprimerate,whichisabenchmarkforbusinessloans,rosefrom2.5%to6.5%,andlonger-termcorporateborrowingratesareupabout2percentagepoints.76543210%76543210January2022January2023Note:Valuesaremonthlyaverages.Long-termcorporateborrowingratesreflectratesoninvestment-gradecorporatebonds.Sources:BloombergFinanceL.P.,LenderSpotlightandBankofCanadaLastobservation:January2023Changestoourpolicyratehavealsoaffectedtheexchangerate.Buttheexchangeratechannelhasbeenmoremutedthanusual.BecausetheFederalReservewasalsoraisingratesrapidlythroughtheCanadiandollardidnotappreciateagainsttheUSdollar.Itdidriseinitiallyalsobeganforcefullyraisingtheirpolicyrates.Thisfightagainstinflationisaglobalone—we’renotfightingitalone.1Aftermonthsofpolicyrateincreases,we’reseeingsignsthathigherinterestratesarebeginningtorebalancetheeconomyHouseholdspendinghasmoderatedparticularlyininterestratesensitivesectors.Thelabourmarketremainstightbutearlysignsofeasingareevident.Inflationhasdeclined,andoursurveysofinflationexpectationssuggestmorebusinessesareconvincedthatinflationwillrecede.Letmetalkabouteachoftheseimpactsinturn.erestsensitivespendingThefirstplacewesawtheeffectsofrateincreaseswasinhousingactivity.Whenwebeganraisingrates,Canadianswithvariableinterestratemortgagesand1B.Hofmann,A.MehrotraandD.Sandri,“Globalexchangerateadjustments:drivers,impactsandpolicyimplications,”BankforInternationalSettlementsBulletinNo.62(November2022).-5-thoselookingforanewmortgagefeltitfirst.Nearlyayearlater,peoplerenewingtheirhomeloansarealsofacinghigherinterestcosts.Demandformortgageshasfallenandhousingactivityhasweakenedsharplyfromunsustainablyhighlevels(Chart2).Ratioofsalestonewlistings,seasonallyadjusted,monthlydata9080700402017201820192020202120222023%908070040Source:CanadianRealEstateAssociationLastobservation:December2022erinterestrateshavealsoaffectedspendingonbigticketitemsthatpeopleoftenbuyoncredit,suchasfurnitureandappliances.Youcanreallyseethedeclineinconsumptionintheseinterest-rate-sensitiveareas,buthigherborrowingcostsarestartingtoaffectspendingmorebroadlyaswellConsumptiongrowthlookstohaveweakenedsubstantiallyinthesecondhalfof2022(Chart3).Someofthisslowdownreflectsthewaningboostfromthereopening,buthigherinterestrateshavecontributed.-6-9630-3202-69630-3202-6Goodsandservicesconsumption,growthover2022H1and2022H2,annualizeddata%GoodsconsumptionServicesconsumption,includingNPISH2022H12022H2Note:2022Q4isforecast.NPISHmeansnon-profitinstitutionservinghouseholds.Sources:StatisticsCanadaandBankofCanadacalculationsandprojectionsLastdataplotted:2022Q4DemandandsupplyWithdemandslowing,weareseeingearlysignsthatdemandandsupplyarebecominglessoutofbalanceinouroverheatedeconomy.TheoutputgapprovidesanoverallmeasureofthebalancebetweendemandandsupplyThrough1,theeconomyrecoveredrapidly—thefastestrecoveryonrecordandsupplydisruptionscontinuedAsaresult,theeconomymovedintoexcessdemandin22,puttingupwardpressureonpriceshereinCanada.Butexcessdemandappearstohavepeakedandisbeginningtoease(Chart4).Outputgap,January2023BankofCanadaMonetaryPolicyReport2019202020212022Sources:StatisticsCanadaandBankofCanadacalculationsLastdataplotted:2022Q4-7-ThispictureofexcessdemandintheeconomyisreflectedinawiderangeofourmarketindicatorsTheunemploymentrateisnearhistoricallowsusinessescontinuetoreportwidespreadlabourshortagesandthejobvacancyatedrmarketswerealreadytightbeforethepandemicbutnowtheunemploymentratesforprime-age,youngandolderworkersarealllowerthantheywerebeforethepandemic.Theunemploymentratetodayisalsolowerineveryprovincethanitwasprepandemic.QuebecandBritishColumbiahavethelowestunemploymentratesofall.Thetightnessinthelabourmarketlookstohavepeakedaroundthemiddleof22andhaseasedmodestly.Jobvacancieshavedeclinedfromthatpeak,andtheshareoffirmsfacinglabourshortageshasedgeddown.Moreover,jobgrowthhasbeenslowingmoreininterest-rate-sensitivesectorslikeconstruction,andthishascontributedtoaslowinginoverallemploymentgrowth(Chart5).Differenceincontributiontoemploymentgrowthover2022H2relativeto2022H0.0-0.2-0.3-0.4-0.5SensitiveModeratelysensitiveNotsensitiveSources:StatisticsCanadaandBankofCanadacalculationsLastobservation:December2022Otherfactorsalsoinfluencethelabourmarketdecliningfertilityratesandanagingpopulationmeanfeweryoungworkersareenteringthelabourforceandmoreworkersareretiring.InCanada,immigrationwasinitiallyhamperedbythepandemic,butitisnowimprovingalongwithrisinglabourforceparticipationofwomen.We’llbewatchingabroadsetofindicatorstogaugethebalanceinthetotightermonetarypolicynWithdemandmoderatingbothgloballyandhereinCanada,inflationhasdeclined.Annualconsumerpriceindex(CPI)inflationeasedto6.3%in2SeeBankofCanada,“LabourmarketrecoveryfromCOVID-19,”formoredetails.-8-DecemberfromitspeakofinJuneThisisawelcomedevelopment,butinflationisstilltoohigh.Sofarthedeclineininflationmostlyreflectslowerpricesforenergy,particularlyforgasolineImprovedglobalsupplychainsarealsohelping.Supplybottlenecksandbacklogslastedfarlongerthanweexpected,buttheyarefinallyresolving(Chart6).Globalshippingcostshavecomedown,whichisfilteringthroughtolowerpricesforimportedgoods.GSCPIandPMI:Manufacturingsuppliers’deliverytimes,monthlydataIndexIndex864202004002017201820192020202120222023 GSCPI(leftscale)UnitedStates(rightscale)Euroarea(rightscale)China(rightscale)Canada(rightscale)Note:TheGlobalSupplyChainPressureIndex(GSCPI)providesacomprehensivesummaryofpotentialsupplychaindisruptionsthatcontrolsfordemand-sidefactors.ThePurchasingManagers’Index(PMI)isadiffusionindexofbusinessconditions.Forsuppliers’deliverytimes,aninvertedindexisusedtoshowthatareadinglessthan(greaterthan)50indicatesanincrease(decrease)indeliverytimescomparedwiththepreviousmonth.Sources:S&PGlobalviaHaverAnalyticsandFederalReserveBankofNewYorkLastobservation:December2022onathomeisalsoshowingsignsofeasingthoughpricesforfoodandmanyservicescontinuetoincreasemuchtooquickly.Thecoolingwedoseeininflationisinthesameareaswhereweseehigherinterestratesslowingdemand.NationallyhousepricesaredownfromtheirpeakinFebruary22.HereinQubecboththerunupandthedeclineinhousepriceshavebeenmoreginMaydemandbettersupplychainsandlowershippingcostshavebroughtdowndurablegoodsinflationforthreemonthsinarow.Pricesforhouseholdappliancesroseatapaceofjust2.8%inDecember,downfroma7.4%increasethemonthbefore.Overall,durablegoodspriceinflationhasfallenfrom7.9%atitspeakto4.7%inDecember.Andonatimelierthree-monthbasis,thesepricesweredown3.5%inDecember.-9-MorebroadlywecanalsoseethatmomentumininflationhasslowedToseetheunderlyingtrendsininflation,welookatmeasuresofcoreinflationthatexcludethemostvolatilecomponentsoftheCPI.Ourpreferredmeasuresofcoreinflationhavebeenstuckatabout5%.Buttimelierthree-monthrateshavecomedownbelow5%.Thatsuggestscoreinflationwillstarttodeclineinthemonthsahead.onexpectationsThatbringsmetoinflationexpectations.Withinflationstillhigh,mostrespondentstoconsumerandbusinesssurveyscontinuetoexpectthatCPIinflationwillbewellabove2%overthenexttwoyears.Butourmostrecentsurveysuggestsfewerbusinessesnowthinkhighinflationwillpersist(Chart7).Alotofuncertaintyremains—thedistributionofexpectationsisfarwiderthanitwasbeforethepandemic.Butwe’reontherighttrack.ShareoffirmsrespondingtotheBusinessOutlookSurveywith2-yearinflationexpectationsineachrange,quarterlydata%40505050≤11–22–33–44–55–66–77–8>8Expectedrateofinflation(%)2022Q22022Q4Note:Theestimatesarebasedonfirms’responsestotheBusinessOutlookSurvey(BOS)question,“Overthenexttwoyears,whatdoyouexpecttheannualrateofinflationtobe,basedontheconsumerpriceindex?”Bucketsexcludethelowerboundandincludetheupperbound.Sources:BankofCanadaandBankofCanadacalculationsLastobservation:2022Q4Whatcomesnext?AttheendofJanuary,wesaidthatweexpecttopauseratehikeswhileweassesstheimpactsofthesubstantialmonetarypolicytighteningomicdevelopmentsevolvingbroadlyinlinewiththeoutlookpublishedinJanuary.AsIhaveexplained,thetransmissionmechanismtakestime—typicallywedon’tseethefulleffectsofchangesinourovernightratefor18to24months.That’swhypolicyneedstobeforwardlooking.Inotherwords,weshouldn’tkeepraisingratesuntilinflationisbackto2%.Instead,weneedtopauseratehikesbeforeweslowtheeconomyandinflationtoomuch.Andthatiswhatwearedoingnow.-10-OurassessmentthatitistimetopauseisbasedonwhatwehaveseensofarandonourforecastforeconomicgrowthandinflationWewillbeassessingeconomicdevelopmentsrelativetothisforecast.Ifnewevidencebeginstoaccumulatethatinflationisnotdeclininginlinewithourforecast,wearepreparedtoraiseourpolicyratefurther.Butifnewdataarebroadlyinlinewithourforecastandinflationcomesdownaspredicted,thenwewon’tneedtoraiseratesfurther.Weexpecteconomicgrowthtobeclosetozeroforthenextthreequarters.WithgrowthindemandstalledsupplywillcatchupandtheeconomywillmovefromexcessdemandtomodestexcesssupplyThiswillrelieveinflationarypressures.Wehavealreadyseeninflationingoodspricesbegintofall,andweexpectthistocontinueinthemonthsahead.Butinflationinservicespriceswilllikelytakelongertorecede,partlybecauseofhighlabourcosts(Chart8).Thereismoreuncertaintyaboutthisslowinginservicespriceinflation.Year-over-yearpercentagechange,monthlydata%StartStartofforecast(January2023) 201720182019202020212022202364202GoodsexcludingenergyandfoodinstoresServicesexcludingshelterSources:StatisticsCanadaandBankofCanadacalculations,estimatesandprojectionsLastdataplotted:June2023Wagegrowthiscurrentlyrunningbetween4%and5%andappearstohaveplateauedwithinthatrangeChart9).Withoursurveyofbusinessesalsosuggestingthatinflationexpectationsareedgingback,theriskofawage-pricespiralhasdiminishedStillwagegrowthinthatrangeisnotconsistentwithgettinginflationbacktothe2%targetunlessproductivitygrowthissurprisinglystrongWewillbewatchingproductivity,labourcostsandservicespriceinflationclosely.-11-Wagegrowthmeasures,year-over-yearpercentagechange,monthlydata%8642022017201820192020202120222023LFS,variable-weightmeasureLFS,fixed-weightmeasureSEPH,variable-weightmeasureSEPH,fixed-weightmeasureNote:LFSistheLabourForceSurvey;SEPHistheSurveyofEmployment,PayrollsandHours;TheLFSfixed-weightmeasureisconstructedusing2019employmentweightsandisbasedondatareleasedpriortoJanuary30,2023.Sources:StatisticsCanadaandBankofCanadacalculationsLastobservations:SEPH,November2022;LFS,December2022Wewillalsobewatchingtoseeifprice-settingbehaviourbybusinessesisnormalizingWheninflationislowandstable,thecompetitivesystemworksffectivelyButthatwasnthappeninglastyearwhentheeconomyoverheatedflationincreasedWithinflationexpectationselevatedandtheeconomyinessdemandbusinesseswereraisingtheirpricesmorefrequentlyandbymorethanusual.Morerecently,businesseshavetoldusthattheyexpecttheirpricingbehaviourwillreturntonormal.Wehavealreadyseenthedistributionofpricechangesstarttonormalizebutwearestillalongwayfromnormal.(Chart10).-12-edThree-monthannualizedpricedistributionsDensity0.100.050.00−20−1001020February2020May2022December2022Note:CPIistheconsumerpriceindex.Sources:StatisticsCanadaandBankofCanadacalculationsLastobservation:December2022developmentshavereinforcedourconfidencethatinflationiscomingdown.WenowexpectCPIinflationtofalltoaround3%inthemiddleofthisyearandreachthe2%targetin2024(Chart11).We’vealreadyseenamomentumshiftingoodsprices.Forinflationtogetbackto2%,supplyneedstocatchupwithdemandandservicespriceinflationneedstocool.Wagegrowthwillneedtomoderatealongsideinflationexpectations,andpricingbehaviournormalize.Ifthosethingsdon’thappen,inflationwon’tcomebacktoour2%target,andadditionalmonetarytighteningwillberequired.Wewillbewatchinginflationdataespec