Bank of Canada’s interest rate hikes are working to tame inflation: Tiff Macklem

Bank of Canada Governor Tiff Macklem argued that the rapid interest rate hikes from the central bank in the past year are working already to tame inflationary pressures.

The Bank of Canada’s monetary policy is working as intended to tackle inflation, says Governor Tiff Macklem, as the central bank prepares to pause its campaign of aggressive interest rate hikes.

Economic signs are showing that the hikes are discouraging Canadians from spending, thereby lowering demand and price pressures, after a year of inflation rising to four-decade highs, says the head of Canadian monetary policy.

While global factors such as easing of supply chain disruptions have played a role in lowering prices in recent months, he also points to the central bank raising its policy rate by 4.25 percentage points in the past year and the ensuing impact on inflation.

Headline inflation peaked at 8.1 per cent in June of 2022, with the most recent figure for December showing annual price hikes have cooled to 6.3 per cent.

“With inflation above six per cent, we are still a long way from the two per cent target,” Macklem said Tuesday. “But inflation is turning the corner. Monetary policy is working.”

Macklem made his comments, largely in French, during a speech to a business audience in Quebec City. An English transcript of his prepared remarks was posted online.

He reiterated the central bank’s forecast that economic growth will be essentially zero over the next three quarters — risking a possible recession in Canada, but effectively relieving “inflationary pressures.”