In the text of a speech to the Halifax Chamber of Commerce, Macklem said Thursday that high inflation increasingly reflects domestic price pressures.
The governor noted that while global events such as the pandemic and the Russian invasion of Ukraine fueled price increases, demand was outpacing supply overall in the Canadian economy.
Mr. Macklem felt that in hindsight, initially believing that high inflation was likely to be temporary, the central bank had
shows too much optimism.
Inflation continues to rise
With the full reopening of the economy in the spring, pent-up demand for services in some sectors such as travel and leisure has started to drive inflation further, he noted.
” Canadians can feel these pressures firsthand when trying to reserve a camping spot or a table at their favorite restaurant. »
After annual inflation hit 8.1% in June, the pace of price increases in Canada slowed, mainly due to lower gasoline prices. In August, annual inflation was 7.0%.
However, Mr. Macklem pointed out that the basic measures of inflation
[n’avaient] not yet significantly reducedeven though headline inflation has fallen.
As the Bank of Canada monitors inflation and the effects of interest rate hikes, the Governor explained that he pays particular attention to core measures of inflation, which tend to be less volatile than headline inflation.
Mild or moderate recession
As rising interest rates continue to slow the Canadian economy, some economists expect Canada to enter a mild to moderate recession.
The Bank of Canada has already mentioned a
Soft landinga scenario in which inflation would decline without triggering a severe economic slowdown.
When asked if the probability of success
Soft landing reduced, at a press conference on Thursday afternoon, Mr. Macklem reiterated that the bank’s main objective was to restore low and stable inflation.
Our mandate is clear. Our main responsibility is price stabilitydeclared.
The Bank of Canada is expected to make its next monetary policy announcement on October 26 and will take the opportunity to provide an update on its economic forecasts.
Global inflationary forces are abating
Since March, the central bank has raised its reference rate five times, from 0.25% to 3.25%. This is one of the fastest rate hike cycles in its history.
In his speech, Mr. Macklem said that he saw signs that global inflationary forces are abating and said that food inflation should soon start to decline.
However, despite the fall in commodity prices and the relaxation of global supply chains, these developments are not enough to reduce inflation in Canada, it added.
With labor markets still tight, an economy still in
excess of demand and inflation is still too high, the Governor felt that further increases in interest rates would be needed.
In a note, the Bank’s chief economist CIBC
warmongering inclination. the CIBC it expects the central bank to raise its policy rate by half a percentage point later this month.
Speaking to reporters, Macklem said the bank had been
very clear on the indicators it examines when making its monetary policy decisions.
Being clear about what we are seeing I think helps the market to digest the news that is coming.Mr. Macklem argued.
The central bank is also monitoring the inflation expectations of individuals and companies, as it fears that inflation will rise.
take root. Expectations of high inflation can cause companies to set future prices even higher and workers to demand higher wages in their future wage contracts.
The bank is expected to release its consumer and business outlook surveys later this month, which will provide an update on how their expectations are changing.
In his speech, Mr. Macklem explained that, in order to keep inflation expectations in check,
inflation will have to fall very sharply for Canadians to maintain their confidence.
In short, there is still more to do.he added.
The housing market has cooled considerably in response to rising borrowing costs. Economic growth has also slowed as the economy posted three straight months of job losses. However, the full effect of interest rate hikes will take time to be felt in the economy.
Mr. Macklem said that high inflation hurts people and businesses by creating
uncertainty and inequalitiesdistorting decision-making and undermining trust.
The governor said that the bank was
certain restore price stability in Canada.
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