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MNI: BOC Says Inflation Well Contained, Can Act If Needed

BOC still expecting strong second-half growth.

Credit: Bank of Canada
(MNI) OTTAWA
WASHINGTON (MNI)

Global inflation pressures still appear to be narrow and temporary, Bank of Canada Governor Tiff Macklem said Thursday from IMF meetings in Washington, and policy makers can act if frayed supply chains lead to additional price increases.

The global recovery is continuing but remains uneven amid struggles to widely distribute Covid vaccines, and unemployment remains elevated across many nations, Macklem told reporters. The IMF's Global Economic Outlook said central banks may need to tighten quickly and even ahead of job recoveries if inflation expectations bubble up.

"So far, the causes of the rise in inflation, they are fairly narrow," Macklem said in response to a question from MNI about the IMF report. "So far we're not really seeing evidence of sustained inflation."

"There is good reason to believe that these are one-off price increases, they won't create ongoing inflation," he said. "But if that's not the case, yes, it is our job to take action and bring inflation back to target, and we will do that." The BOC's next rate meeting is Oct. 27 and economists see a tapering of bond purchases likely to a pace of CAD4 billion-CAD5 billion a month that would stabilize the size of the balance sheet, while holding a record low 0.25% interest rate.

There's still evidence of strong economic momentum in the second half of the year even amid the spread of Covid variants, Macklem said. Canada's recent job reports have also been solid but "some slack remains," he said.

Discussion about supply bottlenecks and inflation were common at the IMF meetings, he said, although long-run expectations and wage pressures appear tame. "These supply disruptions, they continue to be viewed as transitory, but they are likely to be more persistent than most of us thought around the table. To an important degree they do reflect some very specific conditions related to the pandemic, combined with the fact demand is recovering very quickly," he said.

"Measures of inflation are probably going to take a little longer to come back down," he said.

MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

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