The Bank of Canada said, “Inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR). Food prices continue to decline mainly because of intense retail competition, pushing inflation temporarily lower”.
“The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.”
Dr. Sherry Cooper of Dominion Lending Centres says the Bank’s assessment of the Canadian economy is cautious.
“Despite what is likely to be 3.8 per cent growth in the first quarter, the Bank only commented that growth was ‘very strong’ in the first quarter and ‘will be followed by some moderation in the second quarter,’ ” says Cooper.
“There was no hint of coming interest rate hikes or other forward-looking guidance.”
In making the decision, Cooper says the Bank’s governor, Stephen Poloz and his colleagues assessed recent economic indicators to be encouraging, including business investment, which has lagged this cycle.
“The economic expansion has been driven by consumer spending and the housing sector,” says Cooper.
“The Bank expects housing to slow in response to measures taken by the provincial and federal governments. Ontario imposed a foreign buyers’ tax in late April and new listings in the Greater Toronto Area (GTA) surged more than 30 per cent in April.
“Anecdotal evidence suggests that home sales have slowed thus far in May.
“Similar to the response to the foreign buyer tax imposed in August (last year) in Vancouver, home price inflation in the GTA is likely to slow in coming months. But the data for Vancouver suggest that the housing market has bottomed, with home price inflation likely to remain at roughly 11 per cent year-over-year.”
In its statement, the Bank said “the global economy continues to gain traction and recent developments reinforce the Bank’s view that growth will gradually strengthen and broaden over the projection horizon”. As anticipated, growth in the United States during the first quarter was weak, reflecting mostly temporary factors.
“Recent data point to a rebound in the second quarter. The uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks.
“The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment. Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions.”