BoC’s Gravelle says “perfect storm” fuels inflation, but key differences from 1970s

The deputy governor of the Bank of Canada blames a “perfect storm” of factors that have pushed inflation to decades-high levels in the country, as one candidate for leadership of a conservative party says rising prices reason enough for the head of the bank to lose his job.

In a speech in Montreal on Thursday, Bank of Canada deputy governor Toni Gravelle said the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine have led to rising inflation.

He said the economy is “pretty warm” as the economy averaged 6% year-on-year in the second half of last year.

Gravelle said the situation is different in some important ways from the late 1970s, when high inflation was combined with an unemployment rate of about eight percent, compared to the current 5.2 percent, and the general economy slowed or went into recession. used to be.

“This is not the 1970s again,” he said, according to the prepared text of his speech released in Ottawa.

Gravelle’s speech comes a day after Conservative leadership candidate Pierre Poilievre, who has been critical of the Bank of Canada during the pandemic, said during a leadership debate that he would remove Governor Tiff Macklem due to skyrocketing inflation.

Prime Minister Justin Trudeau responded to those comments at a news conference Thursday, highlighting the central bank’s independence from the then-government and how that has played a positive role in Canada’s global economic reputation.

“The fact that one of the leading candidates for the Conservative Party of Canada … appears to either be totally misunderstood, or completely disregarding the facts, is somewhat disappointing in an age when we need more responsible leadership, not less, ” he said.

Poilievre’s conservative opponents were also critical of his fervent remarks.

“Pierre Poilievre’s plan is to fire the governor of the Bank of Canada so he can meddle politically in monetary policy and impose his risky internet currency agenda,” said Brampton, Ont. Mayor and Conservative candidate for leadership Patrick Brown on Thursday.

Jean Charest, the former Prime Minister of Quebec, called Poilievre’s comments irresponsible.

Leslyn Lewis, a social conservative who placed third in the party’s 2020 leadership race before being elected as an Ontario MP in last year’s federal election, said after Wednesday’s debate that she found the comment disturbing and said it was “undermines credibility in our economic system. †

Rick Petersen, a former Conservative leadership candidate in the 2020 race who co-founded the recently launched Center Ice Conservatives group – which advocates for candidates to talk to mainstream issues to help the party grow – also weighed in and characterized Poilievre’s statement. as intended to grab headlines.

“It’s not a realistic approach, but it’s a smart campaign move – draws attention, hammers out his views that I don’t agree with, but he draws attention in a way that resonates. He dominated the headlines this morning,” the Edmonton businessman said in an interview on Thursday.

During his speech, Gravelle said the bank expected inflation to average nearly six percent in the first half of the year, but with the March reading above what it forecast, it will likely revise its forecast.

The Bank of Canada last month raised its key rate target by half a percentage point to one percent in a bid to slow inflation and warned more rate hikes are on the way.

“We are facing an economy that is showing clear signs of overheating, very tight labor markets and this perfect inflationary storm of global events and preference shifts,” he said, according to the text.

“All of this means that our key rate, at one percent, is too stimulative, especially when inflation is significantly above the top end of our control range.”

The other difference between now and the 1970s, Gravelle said, was the Bank of Canada’s inflation targeting agreement with the federal government. He said the monetary policy framework, first adopted in 1991, has helped to keep inflation low as well as expectations for future inflation.

Trudeau said on Thursday that the government and the Bank of Canada should each play an important role in taming inflation.

“The Bank of Canada has control over interest rates and monetary policy and ensures that the decisions it makes will lower inflation,” he said. “On the government side, we have a responsibility to make sure we do things that don’t increase inflation further, but also give Canadians respite and support.”

This report from The Canadian Press was first published on May 12, 2022.

– With files from Craig Wong and Stephanie Taylor

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