As inflation cools, Macklem says different countries will cut rates at own pace

OTTAWA — Bank of Canada governor Tiff Macklem says central banks will make monetary policy decisions geared toward their own economies, which means some countries may begin cutting interest rates before others.

Macklem made the comments while speaking to reporters on the sidelines of International Monetary Fund meetings in Washington, D.C. Friday.

“We’ve all been resolute in our commitment to restore price stability, and we’ve matched those words with action that has helped us all bring inflation down. As we enter the next phase of disinflation, countries may progress at different speeds,” the governor said.

Macklem contrasted weak economic conditions in Canada and the European Union with the roaring economy of the United States.

“Ultimately, we gear monetary policy decisions to our own domestic circumstances,” Macklem said.

Macklem’s remarks come as economists increasingly expect Canada to begin cutting interest rates before the United States makes a move.

The U.S.’s roaring economy and sticky inflation is delaying forecasters’ expectations for rate cuts from the Federal Reserve.

Meanwhile here in Canada, economists expect the Bank of Canada to begin lowering its key policy rate in June or July.

Economists have been particularly encouraged by the slowdown in core inflation, which measures underlying price pressures by stripping out volatility.

Statistics Canada’s latest consumer price index report Tuesday showed the annual inflation rate was 2.9 per cent in March, up slightly from 2.8 per cent in February.

The acceleration was fuelled by higher gasoline prices, while other price pressures eased last month.

The governor noted some encouraging details in the March report, including the fact that inflation is becoming less broad-based in the economy and core measures are slowing.

“So things are moving in the right direction,” Macklem said.

The governor’s media event was his first since the federal budget was tabled Tuesday by Finance Minister Chrystia Freeland.

In response to questions on whether the new spending plan would affect inflation, the governor noted the federal fiscal outlook hasn’t changed much.

But he wouldn’t directly weigh in on its impact on inflation.

“The net effect of more spending and more revenue is that the fiscal track has not changed significantly since the fall economic statement,” he said.

Macklem said the Bank of Canada plans to analyze the spending measures in more detail to figure out how the budget may affect inflation overall.

He also noted the federal government respected the new fiscal guardrails it pledged in the fall and promised to maintain them, which he said was “helpful.”

This report by The Canadian Press was first published April 19, 2024.

Nojoud Al Mallees, The Canadian Press