Factors driving hot Canadian inflation still seem temporary, central bank chief says

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OTTAWA (Businesshala) – The factors driving Canada’s red-hot inflation are proving more persistent than expected, but “there are good reasons to believe” they remain temporary, Bank of Canada Governor Tiff McCalem said on Thursday. .

FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada May 23, 2017. Businesshala/Chris Wattie

Macklem, responding to questions after a speech at a foreign policy think-tank, said Canada’s central bank expects inflation to remain above the 1-3% control threshold in 2021, mainly from base-year effects. and due to supply chain disruptions.

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“We have more persistence than we previously thought. But when you look at it, I think there are good reasons to believe that they are temporary,” he said, speaking about the factors that drive inflation.

Canada’s annual inflation rate rose to 4.1% in August, an 18-year high. This has sparked public outcry over rising prices and concerns that these increases may continue.

“Our job as a central bank is to make sure that an outright rise in prices doesn’t become ongoing inflation… what we’re really looking for is to watch for any signs of spreading,” Macklem told reporters.

He said that while the short-term measures of expected inflation have increased, the medium to long-term measures of expected inflation have not increased.

Macklem also said that the central bank is watching the wage hike carefully. He said it does not see evidence of wages becoming an independent source of inflation.

“I want to reassure Canadians that they can be confident that we will control inflation,” he said.

Working through “friction” in the labor market is taking longer than expected, because companies need time to find the right workers, and workers have to find the right jobs.

“We have never reopened an economy before. And I think what we are seeing is the reopening of an economy is much more complicated than closing one,” he said.

Economists said the comments were in line with guidance that the Bank of Canada will keep rates on hold until the second half of 2022.

On the central bank’s monetary policy framework, Macklem said Canada needs something that is “robust for a wide range of circumstances.”

The bank has been reviewing its inflation-targeting framework since 1991. The current agreement with Ottawa expires at the end of this year.

The US Federal Reserve switched to a looser form of average inflation targeting last year.

Additional reporting by Steve Scherer and David Ljunggren in Ottawa Editing by Francis Carey, Paul Simao and Andrea Ricci

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