(Corrects grammar in headline, first paragraph)
By Promit Mukherjee and David Ljunggren
OTTAWA (Reuters) -Ahead of the Bank of Canada’s rates decision on October 29, Governing Council decided to look through “choppy” annual inflation data and consider underlying indicators, minutes of the bank’s meeting released on Wednesday showed.
This approach would help provide signals about the trend of total inflation, they concluded.
The central bank trimmed its key policy rate by 25 basis points to 2.25% last month and signaled this could be its final rate cut for some time, given monetary policy could only help a stuttering economy to a certain extent.
The minutes showed the rate-setting team acknowledged the year-over-year change in inflation would be choppy due to sales tax breaks doled out by the government last year and the continuing effects of the removal of a consumer carbon tax.
“Members would be looking through this choppiness and watching indicators of underlying inflation for signals about the trend of total inflation,” the minutes said.
Canada’s annual inflation rate increased to 2.4% in September, mainly led by a smaller decline in gasoline prices on a yearly basis.
The BoC expects that inflation over the next two years is likely to be around 2%, or at the middle point of its 1% to 3% target range. Rates are already at the lower end of its neutral range, which the bank considers to be somewhat stimulative for the economy.
“Governing Council members also agreed that monetary policy was likely close to the limits of what it could do to support the economy in the current circumstances,” the summary said.
Governor Tiff Macklem said after the rates announcement decision that he would be ready to respond if the economy weakened materially.
The likelihood of inflation stabilizing was one of the main factors the bank considered, even though there was some difference on the timing of the cut.
With continued excess supply, labor market weakness, tepid growth expected in the second half of the year and inflation projected to stay close to the target, the arguments for cutting the policy rate in October were considered more salient, the minutes said.
Governors were also concerned that with U.S. tariffs and trade uncertainty continuing to plague business decisions, weakness in the labor market could persist and broaden.
They did though acknowledge that with immigration curbs slowing down the rate of growth of population, fewer jobs would be needed to maintain current employment levels.
(Reuters Ottawa editorial)
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