The data since April have tipped the balance. The accumulation of evidence—across a range of economic indicators—suggests that excess demand in the Canadian economy is more persistent than we thought, and this increases the risk that the decline in inflation could stall. That’s why we decided to raise the policy rate.
Let’s start with economic growth, which rebounded in the first quarter of 2023 to 3.1%. Consumption growth, in particular, was very strong at 5.8%, with household spending on both goods and services sharply higher. This surprised us. We had expected growth in demand for services to start to ease off, but Canadians continue to catch up on travel, entertainment and restaurant spending.