MONTREAL, Canada – The Bank of Canada ended the year without raising rates, signaling a tone of confidence that our economy is not overheating anymore. Inflation cooled to 3.1 percent in October from 3.8 percent in September. Lower oil prices helped bring inflation closer to target. While goods inflation fell to 1.7 percent, services inflation was at 4.6 percent in October 2023 (an increase from 3.9% in September).
Inflation should continue to trend lower in the new year, clearing part of the uncertainty. Canada’s policy rate is most likely going to stay at 5 percent as the Bank of Canada waits to see further easing in core inflation measures. Before thinking of bringing the policy rate down the central bank will need to feel confident that inflation is on track to reach the 2 percent target and stay there.
The loonie stabilizes in November
The Canadian dollar was stable in November, averaging the same level as in October at US$0.73. While the currency has gained some strength towards the end of November, the long-term outlook remains muted.
In 2024, the greenback will remain strong as the US economy outperforms its major trading partners. Therefore, the Canadian dollar is expected to remain weak, fluctuating between US$0.72 and US$0.75.
Pessimism intensifies among business leaders
The CFIB’s confidence index for the year ahead continued to fall below the critical 50 mark, from 47.2 to 45.6 between October and November. Optimism continued to decline in nearly every province. Among the provinces, confidence was lowest in Ontario and Quebec, at 45.2 and 42, respectively.
A slowing economy combined with tight credit conditions has weighed heavily on business confidence.