If we continue to see the above-average wage growth that we’ve been seeing in Canada without stronger growth in productivity, it will be difficult to bring inflation all the way down to 2%. Households in Canada are also some of the most indebted in the G7: our household debt-to-income ratio has been on a generally upward path for the past three decades.
High debt typically makes an economy more sensitive to interest rate increases. When it comes to monetary policy, Canada has had one of the most forceful tightening cycles. We were the second major central bank in the advanced economies to raise interest rates to fight inflation.