Inflation ‘volatility’ keeping Bank of Canada wary about future rate decisions

globalnews.ca:

Inflation’s “volatility’” is keeping the Bank of Canada cautious about the future path for interest rate decisions, according to a senior central bank official.

Deputy governor Toni Gravelle spoke to reporters after a speech in Windsor, Ont. on Thursday, a day after the Bank of Canada held its benchmark interest rate at five per cent for the third consecutive decision.

Despite the hold and expectations from some market watchers that rate cuts could be coming in the spring, the central bank has continued to warn that future hikes are still in the cards.

Gravelle said that despite progress in taming inflation, the Bank of Canada is not convinced that it has tightened monetary policy enough to tame inflation.

“It’s pretty clear that we’re not on a sustainable path to two per cent (inflation) yet,” he told reporters Thursday.

Inflation has cooled significantly this year as Canada’s economy weakens. The annualinflation rate in October was 3.1 per cent, down from 3.8 per cent the month earlier, thanks largely to lower gas prices.

But “one month doesn’t make a trend,” Gravelle said, noting that inflationdropped to 2.8 per cent in June of this year before rebounding to four per cent later that summer.

The Bank of Canada needs to see more progress in its underlying inflation metrics before it can be convinced that inflation will fall all the way back to its two per cent target without further tightening, he said. Elevated wage growth, short-term inflation expectations and consumer pricing behaviours are three areas the central bank has said it’s watching to ensure price stability returns.

“We haven’t seen enough data to be less concerned about the inflation outlook,” Gravelle said.

“There’s still some volatility out there, that’s