The central bank is forecasting near-zero economic growth through the first three quarters of 2023, as higher interest rates constrain consumer spending and business investment
. It expects the rate of unemployment – which remains near an all-time low – will rise in the coming months.
Mr. Macklem’s comments about the severity of a potential recession feed into an ongoing debate about a so-called “soft landing” – whether it’s possible to get inflation back to the central bank’s 2 per cent target without a major economic contraction and rise in joblessness. At the same time Mr. Macklem has said he’s wary of overshooting and causing a deeper contraction than needed to get prices under control – particularly as interest rate changes take six to eight quarters to have a full impact. This dynamic played into the bank’s decision to announce a “conditional pause” to further rate hikes last month.
Mr. Perrault published a follow-up report on Thursday outlining four possible trajectories for inflation this year. He sees inflation averaging between 3.3 per cent and 4.5 per cent this year, depending on the evolution of the labour market, supply chains and commodity prices. “The tightness in the labour market needs to ease, wage growth needs to moderate, and service price inflation needs to cool. Inflation expectations also need to come down and businesses return to more normal pricing behaviour. If those things don’t happen, inflation will get stuck above our 2 per cent target, and additional monetary tightening will be required,” he said.
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