Bank of Canada Governor David Dodge has reiterated his call that rates are going up but the timing remains uncertain.

Speaking to the Canadian Council of Chief Executives in Washington, D.C. Monday night, Dodge said that even though growth slowed in the fourth quarter of 2002, reflecting global economic and geopolitical uncertainties, “our economy continues to operate close to capacity”.

As evidence of this, he cited high industrial-capacity utilization; a record-high labour force participation rate; a record-high employment-to-population ratio; corporate profits at their highest level since early 2001; and trend inflation that is running above target.

“Canada’s inflation numbers continue to reflect the impact of higher-than-expected prices for crude oil and natural gas, further increases in auto insurance premiums, and price pressures in certain sectors, such as housing, food, and some services. This higher inflation also suggests an underlying firmness in the price-setting environment. Relative price increases wouldn’t be pushing up trend inflation if there was not sufficient demand,” he said.

He said that its latest rate decision weighed domestic inflation pressures, the expectation that Canadian economic activity will remain near potential in 2003, the stimulative stance of monetary policy and improved conditions in capital markets.

Still, the stance of monetary policy in Canada remains stimulative, he said. “Thus, over time, further reductions in monetary stimulus will be required to return inflation to the target in the medium term. But, as we have said, the timing and pace of increases in policy interest rates will continue to depend on a number of considerations. These include: the strength of demand pressures; the evolution of inflation expectations; the impact on confidence of global economic uncertainties; and the way in which the war in Iraq affects demand and inflation, both globally and in Canada.”

Dodge said that the bank continues to monitor all of these factors and will adjust monetary conditions to keep Canadian inflation low, stable, and predictable over the medium term.

“In these trying times, it is tough indeed to maintain a clear view of the current economic picture. But, if we spend all our energy focusing on the near term, we risk losing sight of what’s farther out. Your job is to build enterprises that will flourish over the longer term. And our job as policy-makers, whether on the monetary or fiscal side, is to create the best possible climate for sustained economic growth,” he concluded.

“In an uncertain world, the best thing we can do is to stick to sound economic policy principles. They have proven to be the most effective tools to deal with short-term turbulence and, at the same time, promote solid, sustainable economic growth and prosperity over the longer term.”