Summary of the Bank of Canada Monetary Policy Report
The most crucial problem of steady inflation growth is the discrepancy between supply and demand for goods and services. Core inflation has remained excessively elevated since 2022 (Broverman, 2022). There is a tendency for inflation to take root, so the government is trying to prevent a further increase in inflation. The primary measure the central bank takes is to increase the interest rate. However, this led to the imposition of strict domestic financial conditions, which slowed down the country’s overall economic growth. The report also notes a severe decline in housing investment.
At the moment, the most effective means of reducing inflation is the regulation of gasoline prices. The Bank of Canada forecasts that by the middle of this year, inflation will slow to about 3% from the current rate of 6.3% and return to the target of 2% next year (Bank of Canada, 2022). The monetary policy combines different approaches to settling the issue of inflation in Canada. In general, short-term inflationary forecasts of large companies are reduced mainly due to gasoline prices.
Monetary Policy Tools
- Global Supply Chain Pressure Index
- Canadian Effective Exchange Rate Index
- Oil and Natural gas data compilations
- The real annual GDP
- Canadian Survey of Consumer Expectations
- Open Market Operations Estimations
- Business Cycle Directions
Direction of the Canadian Economy: An Analysis of the Business Cycle
A downward trend in the number of investments is expected in business cycles. A similar situation is associated with a decrease in funding and easing demand. Because bank lending rates are rising, the cost of one business life cycle becomes very resource-intensive. In Canada, it is planned to increase the growth of investment in the business in 2024 (Bank of Canada, 2022). This will be available after the implementation of the policy described above.
The central aspect of strengthening this trend is boosting demand within the country’s economy (Bank of Canada, 2022). It is also worth paying attention to the trends in sponsoring the production of cars with electric motors (Dincer & Razi, 2022). According to experts, such investments can also help strengthen demand (Dincer & Razi, 2022). In other words, the country’s trends in the business cycle are opposed to each other.
Major Causes of Inflation Identified in the Monetary Policy Report
The report argues that the reasons for the increased inflation are that enterprises operate with huge excess demand. Also, the reason for such an increase in inflation can be considered a decrease in gasoline prices. The report also mentions a labor shortage in the factories and an increase in the interest rate of loans and mortgages, which generally reduces economic activity. According to the government’s idea, lower inflation may be caused by a slowdown in economic demand growth.
Assessment of Government Efforts to Protect the Canadian Economy
The main advantage of Canadian monetary policy may be establishing a floating exchange rate. The similar turnover of the Canadian dollar, which the markets set according to the forces of supply and demand, gives the central bank the flexibility to determine a path different from that of our trading partners. In other words, it helps protect against inflation and establish a more stable economy within the country. As far as the report is directly centered on minimizing the recent invasion-related consequences and inner Canadian problems associated with inflation, it can be stated that the government does enough to protect the country. The quick response and planned rapid actions help ensure that the inflation problem is addressed and the plan will be further developed.
References
Bank of Canada. (2022). Monetary policy report. Web.
Broverman, A. (2022). Inflation outlook for 2023. Forbes Advisor. Web.
Dincer, I., & Razi, F. (2022). A review of the current state, challenges, opportunities and future directions for implementation of sustainable electric vehicle infrastructure in Canada. Journal of Energy Storage, 56(B). Web.