加拿大央行货币政策报告-2023年7月

MonetaryPolicy

Report

July2023

Canada’sinflation-controlstrategy

Inflationtargetingandtheeconomy

TheobjectiveofCanada’smonetarypolicyistopromotetheeconomicandfinancialwell-beingofCanadians.Canada’sexperiencewithinflationtargetingsince1991hasshownthatthebestwaythatmonetarypolicycanachievethisgoalisbymaintainingalowandstableinflationenvironment.Doingsofostersconfidenceinthevalueofmoneyandcontributestosustainedeconomicgrowth,astrongandinclusivelabourmarketandimprovedlivingstandards.

In2021,theGovernmentofCanadaandtheBankofCanadarenewedtheflexibleinflation-targetingstrategyofthemonetarypolicyframeworkforafurtherfive-yearperiod,endingDecember31,2026.1

Theinflationtargetwasrenewedatthe2%midpointofthe1%–3%controlrange,withinflationmeasuredasthe12-monthrateofchangeintheconsumerpriceindex(CPI).

TheGovernmentandtheBankagreedthatthebestcontributionmonetarypolicycanmaketotheeconomicandfinancial

well-beingofCanadiansistocontinuetofocusonpricestability.TheGovernmentandtheBankalsoagreedthatmonetarypolicyshouldcontinuetosupportmaximumsustainableemployment,recognizingthatmaximumsustainableemploymentisnotdirectlymeasurableandisdeterminedlargelybynon-monetaryfactorsthatcanchangethroughtime.

Further,theGovernmentandtheBankagreedthatbecausewell-anchoredinflationexpectationsarecriticaltoachievingbothpricestabilityandmaximumsustainableemployment,theprimaryobjectiveofmonetarypolicyistomaintainlow,stableinflationovertime.

Inflationtargetingissymmetricandflexible

Canada’sinflation-targetingapproachissymmetric,whichmeanstheBankisequallyconcernedaboutinflationrisingaboveorfallingbelowthe2%target.

Canada’sinflation-targetingapproachisalsoflexible.Typically,theBankseekstoreturninflationtotargetoverahorizonofsixto

eightquarters.However,themostappropriatehorizonforreturninginflationtotargetwillvarydependingonthenatureandpersistenceoftheshocksbuffetingtheeconomy.

The2021agreementwiththeGovernmentspecifiesthatthe2%inflationtargetremainsthecornerstoneoftheframework.

TheagreementfurthernotesthattheBankwillcontinuetousetheflexibilityofthe1%–3%controlrangetoactivelyseekthemaximumsustainablelevelofemployment,whenconditionswarrant.TheBankwillalsocontinuetoleveragetheflexibilityinherentintheframeworktohelpaddressthechallengesofstructurallylowinterestratesbyusingabroadsetofpolicytools.TheBankwillusethisflexibilityonlytoanextentthatisconsistentwithkeepingmedium-terminflationexpectationswellanchoredat2%.

Monetarypolicytools

Becausemonetarypolicyactionstaketimetoworktheirwaythroughtheeconomyandhavetheirfulleffectoninflation,monetarypolicymustbeforward-looking.

TheBanknormallycarriesoutmonetarypolicythroughchangesinthetargetfortheovernightrateofinterest(thepolicyrate).The

Bankalsohasarangeofmonetarypolicytoolsitcanusewhenthepolicyrateisatverylowlevels.Thesetoolsconsistofguidanceonthefutureevolutionofthepolicyrate,large-scaleassetpurchases(quantitativeeasingandcrediteasing),fundingforcreditmeasures,andnegativepolicyrates.Thepotentialuseandsequencingofthesetoolswoulddependontheeconomicandfinancialmarketcontext.

AlloftheBank’smonetarypolicytoolsaffecttotaldemandforCanadiangoodsandservicesthroughtheirinfluenceonmarketinterestrates,domesticassetpricesandtheexchangerate.Thebalancebetweenthisdemandandtheeconomy’sproductioncapacityis,overtime,themainfactorthatdeterminesinflationpressuresintheeconomy.

Communications

Consistentwithitscommitmenttoclear,transparentcommunications,theBankregularlyreportsitsperspectivesontheeconomyandinflation.Policydecisionsaretypicallyannouncedoneightpre-setdaysduringtheyear,andfullupdatestotheBank’soutlookarepublishedfourtimeseachyearintheMonetaryPolicyReport.

TheBankiscommittedtoexplainingwhenitisusingtheflexibilityoftheinflation-targetingstrategy.

Giventheuncertaintyaboutthemaximumsustainablelevelofemployment,theBankwillconsiderabroadrangeoflabourmarketindicators.2TheBankwillalsosystematicallyreporttoCanadiansonhowlabourmarketoutcomeshavefactoredintoitspolicydecisions.

Monitoringinflation

Intheshortrun,thepricesofcertainCPIcomponentscanbeparticularlyvolatileandcancausesizablefluctuationsinCPIinflation.

Insettingmonetarypolicy,theBankseekstolookthroughsuchtransitorymovementsinCPIinflationandfocuseson“core”inflationmeasuresthatbetterreflecttheunderlyingtrendofinflation.Inthissense,thesemeasuresactasanoperationalguidetohelptheBankachievetheCPIinflationtarget.TheyarenotareplacementforCPIinflation.

TheBank’stwopreferredmeasuresofcoreinflationareCPI-trim,whichexcludesCPIcomponentswhoseratesofchangeinagivenmontharethemostextreme,andCPI-median,whichcorrespondstothepricechangelocatedatthe50thpercentile(intermsofbasketweight)ofthedistributionofpricechanges.

Formoredetails,seeJointStatementoftheGovernmentofCanadaandtheBankofCanadaontheRenewaloftheMonetaryPolicyFramework

(December13,2021)

;MonetaryPolicyFrameworkRenewal—December

2021;andT.Macklem,“OurMonetaryPolicyFramework:Continuity,ClarityandCommitment”(speechtotheEmpireClubofCanada,Toronto,

December15,2021).

See,forexample,t

herangeofindicatorst

hattheBankisusingtotracktherecoveryofthelabourmarketfromtheeffectsoftheCOVID-19pandemic.

TheMonetaryPolicyReportisavailableontheBankofCanada’swebsiteat

bankofcanada.ca.

Forfurtherinformation,contact:

PublicInformationCommunicationsDepartmentBankofCanada

234WellingtonStreetOttawa,OntarioK1A0G9

Telephone:613-782-8111;

1-800-303-1282(toll-freeinNorthAmerica)

Email:

info@bankofcanada.ca

Website:

bankofcanada.ca

ISSN1201-8783(Print)

ISSN1490-1234(Online)

©BankofCanada2023

MonetaryPolicyReport

July2023

ThisisareportoftheGoverningCounciloftheBankofCanada:

TiffMacklem,CarolynRogers,PaulBeaudry,ToniGravelle,SharonKozickiandNicolasVincent

Contents

Overview 1

Globaleconomy 2

Tighterfinancialconditions 3

Box1:Keyinputstotheprojection 4

Persistentinflation 4

BuoyantbutslowingUSeconomy 6

Weakgrowthintheeuroarea 6

SlowgrowthinChinaaftersurge 6

Loweroilprices 7

Canadianeconomy 8

Persistentinflationarypressures 9

Surprisinglystrongdemand 11

Tightlabourmarketwithsomesignsofeasing 12

Slowingdemandgrowthandrisingsupply 14

Box2:Revisedoutlookforinflationandeconomicactivity 15

Box3:Householdfinancialhealth 18

Inflationattargetin2025 20

Riskstotheinflationoutlook 23

Mainupsiderisks 23

Maindownsiderisks 24

Overview

Inflationcontinuestofallglobally,butcoreinflationinmajoreconomiesremainselevated.Inresponse,severalcentralbankshaveraised—orsignalledtheywillraise—theirpolicyratesfurther.

Globaleconomicgrowthinthefirsthalfof2023wasstrongerthanhadbeenexpectedatthebeginningoftheyear,withsurprisinglyrobustUSconsumptiongrowth.GrowthinglobaldemandshouldmoderateoverthenextyearduetomonetarypolicytighteningandaslowdowninChina.

InCanada,inflationhascontinuedtocomedown.Consumerpriceindex(CPI)inflationwas3.4%inMay.Thisrepresentssignificantprogresstowardpricestabilityoverthepastyearasinflationhassteadilydroppedfromahighof8.1%lastsummer.

However,thedownwardmomentumininflationisslowing,largelybecausedemandinCanadacontinuestooutpacesupply.Householdspendinghasbeenrobust,supportedbystrongdemandforlabour,populationgrowthandaccumulatedhouseholdsavings.Housingresalesandhousepriceshavepickedup.Atthesametime,businessinvestmentissoftening.Labourmarketconditionsremaintightbutappeartobeeasing.

Growthingrossdomesticproduct(GDP)isprojectedtoslow,averagingabout1%inthesecondhalfofthisyearandthefirsthalfofnextyear.ThisimpliesGDPgrowthof1.8%in2023and1.2%in2024.Asthecumulativeinterestrateincreasesworktheirwaythroughtheeconomy,theywillweighonhouseholdspendingandbusinessinvestment.Weakforeigndemandisalsoexpectedtoslowexportgrowth.GDPgrowthisprojectedtograduallypickupstartinginthesecondhalfof2024,reaching2.4%in2025.

Inflationisnowprojectedtoremainaround3%overthenextyear.Asexcessdemanddissipatesandlabourmarketconditionsease,inflationgraduallyreturnstothe2%targetinthemiddleof2025.ThisisabouttwoquarterslaterthanforecastintheJanuaryandAprilreports.

Aconsiderableamountofuncertaintysurroundstheforecast,particularlyinto2024and2025.Three-monthratesofcoreinflationhavestayedinthe3½%to4%rangeforsometime.Whilenear-terminflationexpectationsareeasing,theyremainhigh.Andexcessdemandhasbeenmorepersistentthanexpected.Allthissuggestsincreasedriskthattheprogresstowardpricestabilitycouldstall.

Globaleconomy

Inflationcontinuestofallinmostregions,butcoreinflation—especiallyforservices—isprovingtobestubborn.Tightlabourmarkets,robustconsumerdemandandelevatedinflationexpectationsaregeneratingpersistentinflationarypressuresinmanyeconomies.Inresponse,severalmajorcentralbankshaveraisedtheirpolicyratesfurtherorsignalledmoreincreasesarelikely.

Globaleconomicgrowthhasbeenstrongerthanexpected.ThisisespeciallythecaseintheUnitedStates,Canada’slargesttradingpartner.USconsumerspendinghasbeensurprisinglystrongbecausehouseholdscontinuedtodrawdownsavingsaccumulatedduringthepandemic,andatightlabourmarkethassupportedincomes.USbusinessinvestmenthasalsobeenunexpectedlyrobust.Incontrast,economicgrowthintheeuroareahasbeenweak,largelyasexpected.

Overthenextyear,globaleconomicgrowthisprojectedtoslowasmonetarypolicyfurtherrestrictsdemand.IntheUnitedStates,fiscalpolicyrestraintandreducedspendingfrompandemic-relatedsavingsalsoweighondemandgrowth.Atthesametime,thepaceofeconomicactivityinChinaisexpectedtoslowastheboostfromtheliftingofpandemicrestrictionswanesandgrowthofexternaldemandmoderates.Globalgrowthisprojectedtopick

upmodestlyinthesecondhalfof2024beforestrengtheningin2025,astheeffectsofhigherinterestratesoneconomicgrowthdissipate(Table1).

Inflationisprojectedtoeaseasdemandgrowthslows.Lowergoodspriceinflationleadsthisdecline,whileservicespriceinflationadjustsmoregradually.Bytheendof2025,inflationisprojectedtoapproachcentralbanktargets.However,thespeedofthisdeclineremainsuncertain.

Table1:Projectionforglobaleconomicgrowth

ShareofrealglobalGDP*(%)

Projectedgrowth†(%)

2022

2023

2024

2025

UnitedStates

16

2.1(2.1)

1.8(1.3)

0.6(0.4)

1.4(1.8)

Euroarea

12

3.5(3.5)

0.3(0.7)

1.0(0.5)

1.5(1.5)

Japan

4

1.0(1.0)

1.3(0.9)

0.9(1.2)

1.2(1.3)

China

19

3.0(3.0)

5.5(5.7)

4.7(4.7)

4.3(4.2)

Oil-importingEMEs‡

33

4.3(4.4)

3.6(3.0)

3.0(2.7)

3.6(3.6)

Restoftheworld§

17

3.5(3.3)

1.4(1.3)

1.4(1.2)

1.7(1.7)

World

100

3.4(3.4)

2.8(2.6)

2.4(2.1)

2.7(2.8)

*

Sharesofgrossdomesticproduct(GDP)arebasedonInternationalMonetaryFund(IMF)estimatesofthepurchasing-power-parityvaluationofcountryGDPsfor2021fromtheIMF’sOctober2022WorldEconomicOutlook.Theindividualsharesmaynotaddupto100duetorounding.

†NumbersinparenthesesareprojectionsusedintheAprilReport.

‡Theoil-importingemerging-marketeconomies(EMEs)groupingexcludesChina.ItiscomposedoflargeEMEsfromAsia,LatinAmerica,theMiddleEast,EuropeandAfrica(suchasIndia,BrazilandSouthAfrica)aswellasnewlyindustrializedeconomies(suchasSouthKorea).

§“Restoftheworld”isagroupingofothereconomiesnotincludedinthefirstfiveregions.Itiscomposedofoil-exportingEMEs(suchasRussia,NigeriaandSaudiArabia)andotheradvancedeconomies(suchasCanada,theUnitedKingdomandAustralia).

Sources:NationalsourcesviaHaverAnalyticsandBankofCanadacalculationsandprojections

Financialconditionstightenedmodestly

Globalfinancialconditionsarenowmodestlytighterthantheywereatthestartoftheyear.Yieldsongovernmentbondsacrossadvancedeconomieshaverisenascentralbankshaveincreasedpolicyratesandmarketshavepricedinamoreprolongedtightening.Equityreturnshaverisen,mostlydrivenbyasmallnumberoftechnologystocks.

ThevalueoftheCanadiandollarislittlechangedagainstitsUScounterpart,butithasappreciatedagainstabroaderbasketofcurrencies(Chart1andBox1).

Chart1:TheCanadiandollarislittlechangedagainstitsUScounterpart

Canadianexchangerates,dailydata

AprilReport

Index135

US$0.88

130 0.84

125 0.80

120 0.76

115 0.72

110

2021 2022 2023

0.68

CEER(leftscale)

CEER,excludingtheUnitedStates(leftscale)

Can$/US$exchangerate(rightscale)

Note:CEERistheCanadianEffectiveExchangeRateindex—aweightedaverageofbilateralexchangeratesfortheCanadiandollaragainstthecurrenciesofCanada’smajortradingpartners.

Sources:BloombergFinanceL.P.andBankofCanadacalculationsLastobservation:July6,2023

Box1

Keyinputstotheprojection

TheBankofCanada’sprojectionisconditionalonseveralkeyinputsandassumptionsabouttheirfuturepath.TheBankregularlyreviewstheseassumptionsandadjuststheeconomicprojectionaccordingly.ThekeyinputstotheBank’sprojectionareasfollows:

OilpricesarelowerthanintheAprilReport.Overtheprojectionhorizon,theper-barrelpricesin

USdollarsareassumedtobe$80forBrent,$75forWestTexasIntermediateand$60forWestern

CanadianSelect.Thesepricesareall$5lowerthanintheAprilReport.

Byconvention,theBankdoesnotforecasttheexchangerateintheMonetaryPolicyReport.TheCanadiandollarisassumedtoremainat75centsUSovertheprojectionhorizon,closetoitsrecentaverageandroughlyunchangedrelativetotheAprilReport.

PotentialoutputgrowthinCanadaisexpectedtoincreasefrom1.4%in2022toabout2%peryearovertheprojectionhorizon.

Realgrossdomesticproduct(GDP)isestimatedtohavegrownatabout1.5%inthesecondquarterof2023,belowpotentialoutputgrowth.Asaresult,the

Bankestimatesthattheoutputgapisbetween0%and1%inthesecondquarter.Thisisslightlylessexcessdemandthanestimatedforthefirstquarter.1

Theprojectionincorporatesinformationfromallprovincialandfederalbudgetsavailableatthetimeofwriting.Governmentspendingisgrowingbyabout2%peryear,contributing0.5percentagepointsonaveragetoGDPgrowthovertheprojectionhorizon.

ThenominalneutralinterestrateinCanadaisestimatedtobeintherangeof2%to3%.2Theeconomicprojectionassumesthattheneutralrateisatthemidpointofthisrange.

Theestimatefortheoutputgapforthefirstquarterof2023is0.25%to1.25%,unchangedfromtheestimateintheAprilReport.

Thenominalneutralinterestrateisdefinedastherealneutralrateplus2%forinflation.Therealneutralrateistherateconsistentwithbothoutputremainingsustainablyatitspotentialandinflationremainingattargetonanongoingbasis.Itisamedium-tolong-termequilibriumconcept.Formoredetails,

seeJ.Champagne,C.Hajzler,D.Matveev,H.Melinchuk,A.Poulin-Moore,

G.K.Ozhan,Y.ParkandT.Taskin,“PotentialoutputandtheneutralrateinCanada:2023assessment,”BankofCanadaStaffAnalyticalNoteNo.2023-6

(May2023);andS.Ahmed,A.Avshalumov,T.Chaar,E.Ekanayake,H.Lao,

L.Poirier,J.Rolland-Mills,A.ToktamyssovandL.Xiang,“AssessingglobalpotentialoutputgrowthandtheUSneutralrate:April2023,”BankofCanada

StaffAnalyticalNoteNo.2023-5(May2023).

Persistentinflation

Inflationhasbeendecliningduetofallingenergyprices,easingsupplyconstraintsandtightermonetarypolicy.However,coreinflationisnotyetonafirmdownwardtrend(Chart2).Inmanycountries,highcoreinflationreflectspersistentlystronginflationincoreservicesprices.

Overtheprojectionhorizon,inflationisexpectedtoeasetowardcentralbanktargetsinresponsetotightermonetaryconditionsandtheresultingslowdownindemandgrowth.Thispaceofadjustmentreflectsthesluggishresponse

ofpricesforservices.Strongdemandforservices(Chart3,panela),tightlabourmarketsandelevatedexpectationsfornear-terminflationareallkeepingservicespriceinflationstubbornlyhigh.

Incontrast,inflationincoregoodspricesisexpectedtocomedownfaster.Demandformanufacturedgoodsisrelativelysoft(Chart3,panelb),energypriceshavedeclined,andsupplychainchallengeshavebeendissipating.

Chart2:Coreinflationremainshighinmanyeconomies

Monthlydata

a.Coreinflation,year-over-yearpercentagechange b.Coreinflation,3-monthannualizedpercentagechange

% %

AprilReport

AprilReport

8 12

6 8

4 4

2 0

0

2019 2020 2021 2022 2023

-4

2019 2020 2021 2022 2023

CanadiancoreCPIrange UnitedStates Euroarea UnitedKingdom

Note:TherateofinflationiscalculatedbasedontheHarmonisedIndexofConsumerPricesfortheeuroareaandtheconsumerpriceindex(CPI)forallothercountries.TheCanadiancoreCPIisarangeofCPI-trimandCPI-median.Dataareseasonallyadjustedexceptfortheeuroarea,UnitedStatesandUnitedKingdominpanela.

Forpanelb,BankofCanadastaffcalculatedtheseasonaladjustmentoftheUnitedKingdomseries.

Sources:StatisticsCanada,USBureauofEconomicAnalysis,EurostatandOfficeforNationalStatistics(UnitedKingdom)viaHaverAnalyticsandBankofCanadacalculations

Lastobservations:euroarea,June2023;others,May2023

Chart3:Demandiselevatedforservicesbutweakforgoods

PurchasingManagers’Index,monthlydata

a.Services,newbusiness b.Manufacturing,neworders

Index70

Index70

60 60

50 50

40 40

30

2021 2022 2023

30

2021 2022 2023

UnitedStates Euroarea China UnitedKingdom

Note:ThePurchasingManagers’Index(PMI)isadiffusionindexofbusinessconditions.Areadingabove(below)50indicatesanimprovement(adeterioration)inoverallbusinessconditionscomparedwiththepreviousmonth.ForChina,thePMIisbasedontheCaixinindex.

Source:S&PGlobalviaHaverAnalyticsLastobservation:June2023

BuoyantbutslowingUSeconomy

DespitethesurprisingstrengthofUSconsumptionandinvestmentspendingduringthefirsthalfof2023,economicgrowthintheUnitedStatesisslowing(Chart4).Growthisprojectedtostallinthefirsthalfof2024duetorestrictivemonetaryconditions,tighterfiscalpolicyandlesssupportfromaccumulatedsavings.Asspendingwanes,unemploymentstartstoriseandwagegrowtheases.SlowingUSeconomicactivityandtherebalancinginconsumptionawayfromgoodstowardservicesareprojectedtoweakendemandforimports,includingfromCanada.Inthesecondhalfof2024andin2025,

USeconomicgrowthincreasesastheimpactoftighteningofmonetarypolicyfades.

Chart4:USoutputgrowthisslowingbuthasbeenstrongerthanexpected

USrealGDPgrowth,quarterly,atannualrates

StartofJulyforecast

%4

3

2

1

0

-1

2022Q3 2022Q4 2023Q1

Januaryprojection Julyprojection

-2

2023Q2

Sources:USBureauofEconomicAnalysisandBankofCanadacalculationsandprojectionsLastdataplotted:2023Q2

Weakgrowthintheeuroarea

Economicgrowthintheeuroareaeffectivelystalledoverthefirsthalfoftheyear.Weakconsumersentiment,decliningpurchasingpowerandthetighteningofmonetarypolicyareweighingondomesticdemand.

Themanufacturingsectoriscontractingasforeigndemandforgoodsisslowing.Atthesametime,activityintheservicessectorhasbeenrobustashouseholdscontinuetocatchuponservicestheymissedoutonduringthepandemic.

Economicgrowthisprojectedtoremainweakthroughmid-2024asmonetarypolicycontinuestodampendemandandbringinflationbacktowardtheEuropeanCentralBank’starget.Growththenstrengthensin2025.

SlowgrowthinChinaaftersurge

Aftersurgingearlierintheyear,China’sgrowthisslowing.ThereboundinactivityintheservicessectorthatfollowedtheliftingofCOVID-19restrictionsresultedinamorerapidpickupingrowththanhadbeenexpectedearlierthisyear.Butthereboundisnowfadingfasterthanpreviouslyprojected.Slowing

globalgrowthisweighingonexports,especiallyofmanufacturedgoods,anddomesticconfidenceislow.Additionally,thepropertysectorremainsweakenedbypastoverbuilding.

Intheprojection,policyeasingisassumedtoprovidesomesupporttotheeconomythrough2024.Growthslowsin2025duetoashrinkingworkforceandslowingbusinessinvestment.

Loweroilprices

Oilpriceshavedeclinedfurtheroverthepastthreemonths,withthepriceofBrentoilgenerallyaroundUS$75perbarrel(Chart5).Thefallinoilpriceslargelyreflectsmarketconcernsthatweaknessinfutureglobalindustrialactivitywillrestraindemand.

However,oilpriceswouldlikelyriseifdemandevolvedinlinewiththeBankofCanada’sprojectionforglobalgrowthandoilsupplydidnotkeepup.Tobetterbalancetheserisks,theBankassumesBrentoilpricestobeUS$80perbarrelovertheprojection.

Naturalgaspriceshavebeenrelativelystableforseveralmonthscomparedwiththevolatilityin2022.Basemetalpriceshavefallen,mostlyinresponsetoweakactivityinChina’shousingmarketandindustrialsector.Othernon-energycommoditypricesareroughlyunchanged.

Chart5:Oilpriceshavedeclinedrecently

Dailydata

US$/barrel

AprilReport

150

125

100

75

50

25

0

2021 2022 2023

WesternCanadianSelect WestTexasIntermediate Brent

Sources:KalibrateCanadaInc.,NYMEXandIntercontinentalExchangeviaHaverAnalyticsLastobservation:July6,2023

Canadianeconomy

ConsiderableprogresshasbeenmadeintheBank’seffortstoreturninflationbacktothe2%target.Inflationfellfromapeakof8.1%lastsummerto3.4%inMay2023.

Economicactivity—especiallyhouseholdspending—hasprovensurprisinglystrong,supportedbytightlabourmarkets,rapidpopulationgrowthandthehighlevelofaccumulatedhouseholdsavings.1Consumptiongrowthinthefirstquarterof2023,at5.8%,wasstrongerthanexpected.Thisstrengthwasobservedbothingoodsthataresensitivetointerestratesandinservices.

Housingresalesandhousepricesalsopickedupearlierthananticipated.Atthesametime,thelabourmarketremainedtight,havingeasedonlymildlysincethebeginningoftheyear.

Economicgrowthisprojectedtomoderatetoanaverageofabout1%throughthesecondhalfof2023andthefirsthalfof2024(Table2andTable3).Thisslowdownresultsfromtheeffectsofhigherinterestratesonhouseholdspendingandbusinessinvestmentaswellasthefadingofsometemporaryfactors.Weakforeigndemandalsorestrainsexportgrowth.Inthesecondhalfof2024,GDPgrowthisexpectedtopickupastheeffectofhigherinterestratesoneconomicgrowthdissipates.Foreigndemandalsostrengthens,boostingexports.

Goingforward,furthereasingofinflationwilllikelytakelongerthanexpectedinpreviousreports,withinflationprojectedtoremainnear3%forthenextyear.Greaterexcessdemandandmorestubborncoreinflationaresustainingunderlyingpricepressures.Tightmonetarypolicyweighsondemand

growth,andtheeconomyisprojectedtoenterintomildexcesssupplyinthebeginningof2024.Inflationshouldthenease,reachingthe2%targetinthemiddleof2025.Thereturnofinflationtotargetisexpectedtooccurtwoquarterslaterthanpreviouslyprojected.

InthisReport,theBankcomparesitsmostrecentoutlookwiththatfromtheJanuary2023Report.Thislongertimeframeprovidesabetterperspectiveontheaccumulatedevidenceofhowtheeconomyandinflationhaveevolved.TheprojectionsfromtheAprilReportareprovidedinTable2andTable3.

Table2:ContributionstoaverageannualrealGDPgrowth

Percentagepoints*†

2022

2023

2024

2025

Consumption

2.5(2.6)

1.5(1.1)

0.7(0.5)

1.1(1.2)

Housing

-1.1(-1.1)

-0.8(-0.8)

0.5(0.4)

0.6(0.4)

Government

0.5(0.5)

0.5(0.6)

0.6(0.5)

0.4(0.5)

Businessfixedinvestment

0.7(0.7)

0.0(0.1)

0.1(0.0)

0.4(0.5)

Subtotal:finaldomesticdemand

2.6(2.6)

1.2(1.0)

1.9(1.4)

2.5(2.6)

Exports

0.9(0.9)

1.6(1.4)

0.0(0.3)

0.7(1.0)

Imports

-2.4(-2.3)

0.4(0.2)

-0.7(-0.5)

-0.7(-0.8)

Inventories

2.3(2.2)

-1.4(-1.2)

0.0(0.1)

-0.1(-0.3)

GDP

3.4(3.4)

1.8(1.4)

1.2(1.3)

2.4(2.5)

Memoitems(percentagechange):

Rangeforpotentialoutput

0.5–2.0

(0.5–2.0)

1.4–3.2

(1.4–3.2)

1.0–3.2

(1.0–3.2)

1.2–2.8

(1.2–2.8)

Realgrossdomesticincome(GDI)

5.1(5.1)

-1.2(-0.2)

1.0(0.5)

2.1(1.9)

CPIinflation

6.8(6.8)

3.7(3.5)

2.5(2.3)

2.1(2.1)

*NumbersinparenthesesareprojectionsusedintheAprilReport.

†Numbersmaynotaddtototalduetorounding.

Sources:StatisticsCanadaandBankofCanadacalculationsandprojections

Table3:SummaryofthequarterlyprojectionforCanada*

2022

2023

2022

2023

2024

2025

Q4

Q1

Q2

Q3

Q4

Q4

Q4

Q4

CPIinflation(year-over-yearpercentagechange)

6.7

(6.7)

5.2

(5.2)

3.6

(3.3)

3.3

6.7

(6.7)

2.9

(2.5)

2.2

(2.1)

2.1

(2.0)

RealGDP(year-over-yearpercentagechange)

2.1

(2.1)

2.2

(2.0)

1.7

(1.4)

1.5

2.1

(2.1)

1.8

(1.1)

1.5

(1.9)

2.5

(2.6)

RealGDP(quarter-over-quarterpercentagechangeatannualrates)†

-0.1

(0.0)

3.1

(2.3)

1.5

(1.0)

1.5

*

Detailsonthekeyinputstothebase-caseprojectionareprovidedinBox1.NumbersinparenthesesarefromtheprojectionintheAprilreport.

†Overtheprojectionhorizon,2023Q2and2023Q3aretheonlyquartersforwhichsomeinformationaboutrealGDPgrowthwasavailableatthetimetheprojectionwasconducted.Forlongerhorizons,fourth-quarter-over-fourth-quarterpercentagechangesarepresented.TheyshowtheBank’sprojectedgrowthratesofCP