Sharp Housing Slowdown Key For BoC

• The summary paragraph and language on inflation expectations read very similar to last month - full comparison below - whilst the excess demand description is identical (“the economy continues to operate in excess demand and labour markets remain tight”). The difference instead comes on growing sensitivity to housing:
• Now: “The effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening.”
• From: “The housing market is pulling back as anticipated, following unsustainable growth during the pandemic”

Summary para:

• Now: "Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further. Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to restore price stability for Canadians and will continue to take action as required to achieve the 2% inflation target."
• From: “Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”

Inflation expectations:

• "The Bank’s preferred measures of core inflation are not yet showing meaningful evidence that underlying price pressures are easing. Near-term inflation expectations remain high, increasing the risk that elevated inflation becomes entrenched."
• From: “The longer [short-term inflation expectations remain high] continues, the greater the risk that elevated inflation becomes entrenched.”