Canada inflation result of ‘perfect storm’: BoC official


Inflation is at the highest point in decades, but the situation is different from the 1970s, when high inflation was accompanied by high unemployment and slow or recessionary economic growth, a senior Bank of Canada official said Thursday. .

In a speech in Montreal, Bank of Canada Vice Governor Toni Gravelle said there has been a “perfect storm” that has fueled inflation as the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine have jointly pushed up prices.

However, he said the economy is also “turning quite warm” as the quarter-on-quarter growth in the second half of last year averaged six percent year-on-year.

Gravelle also pointed to the unemployment rate of 5.2 percent, compared to an average of about eight percent from 1976 to 1982.

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

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.

Federal Conservative leadership candidate Pierre Poilievre has criticized the Bank of Canada and its actions during the pandemic.

In a leadership debate Wednesday in Edmonton, Poilievre said he would replace Bank of Canada governor Tiff Macklem as inflation is at its highest point in decades.

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

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