Population Uncertainties Have Complicated Rate Cut Forecasts
Today, the Bank of Canada released their Governing Council deliberation minutes for their interest rate announcement on April 10th 2024.
The documents reveal that Council members discussed, in detail, the impacts of population growth as well as the impacts of the future decline in non-permanent residents recently announced by the Federal Government.
Council members felt that this rapid fluctuation in population “had complicated” their outlook for economic activity and inflation.
Specifically, they articulated that stronger population growth will increase spending, bolstering GDP growth, which will keep Canada out of recession.
However, they felt that GDP per capita might continue to stagnate.
Structural Shortage of Housing Means Shelter Prices May Go Up
Bank of Canada members felt that population growth generally adds a healthy contribution to both supply and demand in Canada, with workers producing outputs in their jobs, and consuming goods outside of work.
They noted, however, that Canada’s housing market has an existing imbalance of supply, and because housing take so long to build, the increase in population should be expected to increase shelter inflation in the near-term.
“…an expansion in housing supply takes time, the increase in population added to the short-term pressure on shelter inflation, including rent and components linked to housing prices.”
They also stated that they saw uncertainty surrounding Canada’s recently announced reduced immigration targets and Canada’s population of numbers going forward.
Details of how these [immigration] plans will be implemented had not been announced. Governing Council recognized that there was some uncertainty about future population growth and agreed it would be important to update the population forecast each quarter.
-Bank of Canada, Governing Council
Cuts Coming Soon?
The Governing Council unanimously agreed that overall inflation “is still too high”.
They also agreed that the upside risks to inflation are currently greater than the downside risks.
However, members did agree that the January and February declines in CPI were adequate, and they added that they are looking to see this easing “sustained”
There was no consensus among members as to when rates should be cut, the report notes that members had “a diversity of views” about when to start easing.
Overall, this was a hawkish meeting, with no clear consensus on a June rate cut and a strong warning (again) about housing market supply imbalances in Canada.
