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BOC Waiting For Inflation Progress, Prepared To Hike

BOC
  • Deputy Governor Toni Gravelle's speech echoes yesterday's interest rate announcement. 
  • "Given the risks to the inflation outlook, we remain prepared to increase the policy rate further if needed."
  • The Bank is balancing the risks of over- and under-tightening. 
  • "While we saw some welcome improvement in inflation measures in October, we must remember it's just one month. We need to see further progress."
  • "We have made good progress on restoring price stability, but we are not there yet."
  • The rest of the speech focused on the impact of immigration on housing and inflation.
  • BoC estimates that newcomers have helped increase potential output +2-3%.  
  • According to a BoC working paper, the net effect of immigration on inflation is likely inflationary in the short term as increases in shelter price inflation dominate the increase in potential output. 
  • Rent inflation accelerated to +8.2% in October, a 40-year high, as the housing market cannot keep pace with immigration due to structural supply problems. 
  • "To sum up, the recent increase in immigration boosted consumption in the near term, but we estimate that that alone did not have a significant impact on inflation. However, due to Canada’s existing housing supply challenges, population growth has added to the pressure on shelter price inflation."
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