Bank of Canada's Macklem warns against overreacting to hot inflation
In a very unusual move, Bank of Canada Governor Tiff Macklem took to the pages of the Financial Post to defend a three-month run of excessive consumer price gains. The Governor’s opinion piece comes a day after Statistics Canada reported inflation rose 3.1 per cent in June. While a decline from the 3.6 per cent recorded in May, consumer price gains have exceeded Macklem’s 1 per cent to 3 per cent control range since April.
Policy makers expect inflation to creep to an average of 3.9 per cent in the third quarter -- a level not seen since the early 2000s -- but maintain the run-up in the aftermath of the COVID-19 crisis will be short-lived.
“We shouldn’t overreact to these temporary price increases,” Macklem wrote. “You can be confident that we will keep the cost of living under control as the economy reopens.”
The Bank of Canada’s response to the pandemic has become a political issue, with the opposition Conservatives warning Macklem against using purchases of government bonds to finance Justin Trudeau’s spending plans. With the prime minister nearing an election call, repeated high inflation readings are also being blamed on the incumbent Liberals.
The Bank of Canada views the forces behind higher inflation as temporary, saying they are a result of supply chain disruptions caused by the pandemic and a return to normalcy in the prices of some goods that plunged during the initial lockdowns like gasoline.
“Over the next few months, there may be more disturbances and sharp price movements as we return to more normal activities,” Macklem wrote. “Inflation should move back inside our target range next year as businesses work through these temporary factors and the people who lost their jobs during the pandemic rejoin the workforce.”
The Financial Post article is a clear sign the bank is trying to reach a broader audience in reinforcing its commitment to keeping inflation under control. Neither Macklem nor other central bank officials have any speeches scheduled before the next policy decision on Sept. 8, which will be a statement-only affair without a full set of economic forecasts or press conference.
“Securing this recovery could take time. That’s why we’ve pledged to keep our policy interest rate at its lowest possible setting until the economy fully heals,” Macklem wrote, reiterating the bank doesn’t see that happening until the second half of 2022.
To read the Op-Ed: Tiff Macklem: The Bank of Canada remains firmly committed to keeping inflation under control