Housing costs are the biggest contributor to inflation in the country, says Bank of Canada Governor Tiff Macklem.
Current housing costs are an important factor in holding inflation levels up, Mr. Macklem told the House Finance Committee May 2, noting that immigration has led to a rent inflation increase of 8 percent.
Mr. Macklem was asked by MPs if the Bank of Canada would lower rates in the near future and, though he said the central bank sees rates going down eventually, he did not give a timeline for when rates will be cut.
Mr. Macklem made similar statements to a Senate committee earlier this week.
While Mr. Macklem was optimistic on inflation decreasing, which could lead to rate cuts by the bank, he noted there was substantial inflation in the rental housing market.
“There’s a lot of pressure on rents. I think I would agree there probably is some effect. People with higher interest rates are delaying buying a house and need to rent for longer,” he said.
“I think the bigger effect, though, is we’ve had a tight rental market combined with a big surge in immigration,” he added. “Many of those immigrants are entering the rental market. We’ve seen a big increase, particularly non-permanent residents.”
The inflation rate for rental housing has been as high as 8 percent and that “put a lot of additional pressure” on the market, Mr. Macklem said.
Almost all of the population growth has been driven by immigration, particularly temporary residency visas which made up as much as 804,901 of the immigrants who arrived in Canada last year, compared to 471,771 permanent resident arrivals.
Mr. Macklem said the rental inflation situation is unlikely to be solved any time soon, but noted the federal government announcement to reduce the number of temporary residents, primarily student visas, could take some of the pressure off the rental market.
