The Bank of Canada expresses concern about inflation but keeps the interest rate unchanged. Further a concern was raised that high inflation rates may last longer than originally believed, setting the scene for a change in policy early after this year.
Inflation, as assessed by the consumer price index (CPI), “is rising, and the impact of global supply restrictions is filtering through to a larger range of commodities prices,” Governor Tiff Macklem and his Governing Council officials said in an updated policy statement released on Dec. 8. “Given current supply queues, the effects of these limits on prices will certainly take a little time to work their way through.”
The new phrasing essentially admits that supply issues created by the epidemic, together with demand after a robust rebound from last year’s depression, will cause inflationary pressures to linger longer than central bankers in Canada and elsewhere predicted.
The other week, Jerome Powell, the chairman of the United States Federal Reserve, stated it was probably time to “retire” the idea that post-pandemic inflation might be temporary. Central bankers expect that current pricing rises will reduce as sources catch up with demand, but the data now suggests that this process could require more time.
The Bank of Canada warned, “The disastrous floods in British Columbia, along with the uncertainty surrounding the Omicron strain, might impact on the economy by amplifying supply chain disruptions and limiting demand for some services.”
Despite these hurdles, Canada’s growth is projected to grow at a rapid pace. Exports increased by 6.4 percent in October compared to September, reaching a new high of $56.1 billion, according to Statistics Canada.
The unemployment rate fell to 6%, a number that some economists link with full employment, a mythical state that everyone that wants a job has one, and extra hiring would push inflation higher.
Source: Financial Post