While the Bank of Canada’s rate hold last month was a welcome reprieve for borrowers, minutes from the meeting show the decision wasn’t a unanimous one.

“Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target,” reads a summary of the deliberations from the October 25 monetary policy meeting.

“Others viewed the most likely scenario as one where a 5% policy rate would be sufficient to get inflation back to the 2% target, provided it was maintained at that level for long enough,” the summary continues.

In the end, the six-member Governing Council decided to “be patient” and leave interest rates unchanged as they continue to monitor ongoing developments with slowing consumer spending, slowing growth and easing inflation pressures.

The Council agreed that they would need to see downward momentum in core inflation “to be confident that monetary policy was sufficiently restrictive to restore price stability,” the minutes say.

Progress has been made in slowing the growth of headline inflation, which eased to +3.8% in September from August’s 4% growth. Measures of core inflation however, which strip out more volatile items like food and energy, have hovered between 3.5% and 4% for the past year.

Factors contributing to inflation persistence

Members of the Governing Council discussed some of the factors that have been “standing in the way” of their efforts to slow inflation.

They pointed to a global rise in oil prices, which was a key reason that inflation had rebounded from a low of 2.8% this summer.

They also pointed to shelter inflation that is averaging 6%, which it said was due to rising mortgage interest costs following the Bank’s own monetary policy tightening.

“Higher interest rates would normally exert downward pressure on house prices and other costs that are closely linked to house prices, such as maintenance, taxes and insurance,” the summary of their discussion reads. “However, the ongoing structural shortage of housing supply in the economy was sustaining elevated house prices.”

Members added that the rapid increase in Canada’s population had “added to the existing imbalance between demand and supply for housing.”

In its latest Monetary Policy Report, the Bank of Canada upwardly revised its inflation forecast, which it believes will now average 3.9% in 2023 (from 3.7%) before falling to 3% in 2024 (up from a previous 2.5% forecast). Inflation is expected to reach the Bank’s neutral target of 2% by the middle of 2025.

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Last modified: November 8, 2023