Bank of Canada will act to cool inflation if prices are too high, Macklem says



Bank of Canada Governor Ottawa says central banks will curb inflation if temporary price pressures continue stubbornly and appear more permanent.

Tiff McClem said the central bank now expects price increases to be temporary and inflation to return to the bank’s 2 percent target as the economy opens further.

In this week’s updated outlook, central bank forecast inflation is projected to exceed 3% this year and 2% in 2022 and 2023 before returning to its target in 2024.

Part of the pressure on inflation has to do with comparing current prices to lows a year ago, but rising gasoline prices and spikes in consumer demand have also had an impact.

Macklem says the central bank plans to closely monitor prices and how these underlying factors evolve in the coming months.

In an interview, McClem said banks would use available tools, such as major interest rates, to curb inflation if a temporary problem is likely to become a permanent problem.

“There are some imbalances when we restart the economy,” he said, “since supply does not react at exactly the same pace as demand, you get some sharp price fluctuations. ..

“I think these are temporary. I think they will work,” McClem told Canadian media on Wednesday after the bank’s latest economic and inflation outlooks were announced.

“But if that is not the case, and if we start to think that inflation remains above the target range, we have obligations, tools, and control of inflation. Return to the target.”

Macklem did not elaborate on the specific steps the central bank could take, but suggested that it would draw attention to what would happen to Canadians.

For now, banks plan to keep the key policy rate at 0.25%. This is what McClem calls the lowest level since the outbreak of the pandemic.

Banks said on Wednesday that interest rates would remain near zero until they felt the economy had recovered enough to cope with rising interest rates, but it is not expected to happen until the second half of next year.

Macklem said that when it’s difficult to circle a calendar, he’s been off work for months and it takes time to retrain and find new jobs.

“Once you get there, you need to assess what you need. Raising interest rates is not automatic. You need to figure out what you need,” he said.

“But as we get closer to that point, Canadians will certainly have a good idea.”

After falling short of expectations in the first half, the central bank has returned its growth forecast for this year from 6.5% to 6% and raised its outlook for next year from 3.7% to 4.6%. ..

Pandemic pathways add uncertainty to the outlook, but Macklem puts banks on the economic path by promoting public health to provide vaccines to more people through means such as high immunization rates and pop-up clinics. He said he was confident.

“We need to keep going that way,” McClem said.

“The key to a healthy economy is a healthy citizen.”

Jordan press

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