As another year focused on controlling inflation comes to an end, the Bank of Canada’s efforts to stabilize prices are anticipated to wind down in 2024. The substantial increases in interest rates by the central bank are starting to show positive results, enabling it to maintain a steady key interest rate at five percent in recent months.

The increased expenses for borrowing have led to a decrease in both business investments and consumer spending, thereby contributing to a reduction in inflation.

As the year marked by efforts to combat inflation concludes, there’s an anticipation that the economic slowdown will set the stage for potential interest rate cuts by mid-2024, signaling a turning point in the fight against inflation.

The chief economist at Desjardins, Jimmy Jean, acknowledges that while the central bank’s rate hikes have played a role in controlling inflation, a significant portion of the slowdown in price growth comes from the easing of global price pressures. Inflation, currently at 3.1 percent, is less stressful than it was a year ago.

The reduction in inflation is attributed to global factors like improved supply chains and lower energy prices. The impact of high interest rates is also contributing to this positive trend.

While the restoration of price stability is good news for Canadians, especially those with lower incomes facing challenges with rising grocery bills and rents, achieving low and stable inflation comes with its challenges.

Variable rate mortgage holders were the first to experience the effects of rate hikes, but the impact is gradually spreading to other homeowners. More Canadians are expected to renew their mortgages at higher interest rates in the coming year, leading to cutbacks in other expenses.

According to researchers at the Bank of Canada, about 45 percent of mortgages taken out before the central bank began raising rates have seen increased payments by the end of November. The expectation is that nearly all remaining mortgage holders in this group will renew by the end of 2026, likely resulting in higher payments for them as well.

This wave of mortgage renewals is anticipated to have a cooling effect on the economy. Forecasts indicate weak economic growth in 2024, with Desjardins projecting a mild recession in the first half of the year.

A weaker economy means fewer job opportunities and potentially slower wage growth for workers. The unemployment rate, which rose to 5.8 percent in November, is expected to continue climbing in the next year, with projections suggesting it will peak at 7.0 percent in the third quarter.

The Bank of Canada has faced scrutiny for its policy decisions during the COVID-19 pandemic, with political figures expressing differing opinions. Regardless, experts emphasize the importance of a central bank making decisions based on economic principles, even if those decisions are politically unpopular. The central bank’s credibility is expected to be a key factor once the inflation period subsides.