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Free AccessMNI: BOC Cites Upside CPI Risk, Resolute About Keeping Control
Bank of Canada Deputy Governor Toni Gravelle said Thursday that policymakers are more concerned about upside inflation risks and persistent supply bottlenecks but underlined a "resolute" commitment to keeping price gains under control.
The baseline forecast is for supply pressures to ease "over time" and inflation to slow in the second half of next year but the pandemic is a unique shock that economic models have struggled to figure out, Gravelle said in the text of a speech.
"With CPI inflation considerably above our target range of 1 to 3 percent, the materialization of upside risks is of greater concern. If supply disruptions and related cost pressures persist for longer than expected and strong goods demand continues, this would increase the likelihood of inflation remaining above our control range," Gravelle said. The current 4.7% inflation rate is the fastest since 2003 and the seventh month in a row outside the central bank's target band.
"While we expect inflation to ease in the second half of next year, we are closely watching inflation expectations and labour costs to ensure that the forces pushing up prices do not become embedded in ongoing inflation. Rest assured that the Bank of Canada remains resolute in its commitment to keep inflation under control," he said.
FULLER UPDATE IN JANUARY
Gravelle reiterated Wednesday's decision to hold the 0.25% policy interest rate until inflation stabilizes around the 2% target and full output is restored, something seen happening in the middle quarters of next year. Most economists see a rate increase in April, while market trading has some bets on a move even sooner and perhaps five hikes in 2022.
"Our current view remains that we should see elevated inflation subside in the second half of next year. However, we will conduct a full assessment of this risk in January when we update our projection for the economy and inflation," he said.
“This risk that supply disruptions persist longer than we expect figured prominently in our deliberations leading up to yesterday’s policy decision.”
The job market shows signs of largely recovering and "with high vaccination rates and a broad reopening of the economy, we are well down the road to a full recovery," Gravelle said.
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