Calgary, March 12, 2025( Rajeev Sharma): The Canadian economy ended 2024 in good shape. Inflation has been close to the 2% target since last summer. Substantial cuts to our policy rate through the second half of last year boosted household spending and economic growth. However, in recent months, the pervasive uncertainty created by continuously changing US tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest.
Against this backdrop, and with inflation near the 2% target, Governing Council decided to reduce the policy rate a further 25 basis points. Looking ahead, the trade conflict with the United States can be expected to weigh on economic activity, while also increasing prices and inflation. Governing Council will proceed carefully with any further changes to our policy rate given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.
Economic data since our January Monetary Policy Report (MPR) suggests the Canadian economy ended 2024 on a stronger footing than we expected. Past interest rate cuts have boosted consumer spending and business investment, increasing domestic demand in the fourth quarter by a robust 5.6%. Overall, GDP grew 2.6% in the fourth quarter after upwardly revised growth of 2.2% in the third quarter.
This growth path is considerably stronger than we were expecting based on the information we had in January. Job growth also strengthened around the end of the year before stalling in February. Growth in employment increased in November through January, surpassing labour force growth, and the unemployment rate declined to 6.6%.
There were also signs that wage growth is moderating. Inflation has remained close to the 2% target. The temporary GST/HST holiday has lowered some consumer prices, but January inflation came in a little firmer than expected at 1.9%. Inflation is forecast to increase to about 2½% in March with the end of the tax break.
