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Tap here to see other videos from our team. You can refresh your browser, or Bank of Canada, which has established its inflation fighting cred. We're considering whether or not to increase rates going forward, but it's up to the numbers We indicated. If we are surprised on the upside, we are still prepared to be forceful, deputy governor Sharon Kozicki said in a speech on December 8.
We recognize that we have raised interest rates quickly and that their effects are working their way through the economy. We are moving from how much to raise interest rates to whether to raise interest rates. Macklem started tentatively in March, a quarter-point increase in the benchmark interest rate to 0.5 per cent. Since the Bank of Canada and the federal government agreed to use inflation to guide monetary policy in 1991, inflation would be the most aggressive series of interest-rate increases. The benchmark rate will end the year at 4.25 per cent after central banks kept borrowing costs near zero for the better part of the last decade, a startling change given the fact that there was another half-point increase on December 7. Kozicki has made a lot of forceful monetary policy actions since March, according to prepared remarks for a speech by the Urban Development Institute of Quebec in Montreal. The policy tightening has been affecting the economy, adding that we are seeing a softening of demand in interest-rate sensitive areas, especially housing.
Inflation remains the main concern of the Bank of Canada as consumer price index increases in the year-over-year period are hovering around seven per cent, compared to the central bank's target of two per cent. There remains a firmness or stickiness to inflation and near-term inflation expectations, said Kozicki, suggesting that the central bank could be tempted to raise borrowing costs when it updates policy on January 25. It won't be a foregone conclusion. For the first time this year, policymakers think cost pressures are relenting. The consumer price index's consumer price index peaked at 8.1 per cent in June. Core inflation, which measures the trend by removing volatile items from the calculation, appears to have peaked around five per cent. Kozicki observed that the rate has declined to about 3.5 per cent when core inflation is measured over a three-month period.
She said that in order to make meaningful progress toward our inflation target, we need to see three-month inflation come down even further and be sustained. If current trends hold, the Bank of Canada will probably pause in January. Households that have been piling up cheap credit for more than a decade are extremely sensitive to higher interest rates. The central bank calculations show that a significant number of borrowers who took out variable-rate mortgages are no longer making payments on the principal because their monthly payments only cover interest. In the third quarter, household consumption decreased, a concern for an economy that relies on debt to power growth, which has come to rely on housing investment and debt-fuelled spending.