By Paul Vieira
OTTAWA–Senior Bank of Canada officials were unsure when they could begin cutting rates to help a weakened economy, as they worried shelter costs and strong wage gains could keep inflation elevated, according to a summary of central-bank deliberations ahead of a Jan. 24 policy decision.
The Bank of Canada’s six-member governing council agreed the central bank’s benchmark rate, at 5%, was high enough to slow activity and put downward pressure on inflation. The minutes from those deliberations, though, indicate concern that reaching the central bank’s 2% inflation target would be a slow process. On Jan. 24, the Bank of Canada kept the policy rate unchanged, at 5%, and said its focus would be how long it needed to stay at that level to reach the inflation target.
“They recognized that, based on the information that was available, it was difficult to foresee when it would be appropriate to begin cutting interest rates,” according to the minutes, released Wednesday.
The minutes indicated senior officials expressed worries that shelter costs in Canada would continue to keep total inflation elevated. “If the housing market rebounded more than expected in the spring of 2024, shelter inflation could keep CPI inflation materially above the target even while price pressures in other parts of the economy abated,” according to the minutes.
Meanwhile, the minutes suggested broad concern about annual wage growth of between 4% and 5% in Canada. In their deliberations, central bank officials said adjusted unit labor costs were above prepandemic levels. “Members agreed that businesses had a variety of ways to absorb higher wages,” the minutes said, “but if real wages continued to grow significantly faster than productivity, it could add to inflationary pressures.”
Write to Paul Vieira at paul.vieira@wsj.com
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