MNI: BOC Sees Danger From ‘Half-Hearted’ Inflation Fight

Bank of Canada Deputy Governor Paul Beaudry on Thursday said it will take time to pull inflation all the way back to the 2% target after the strongest interest-rate hikes in decades and warned about complacency around finishing the job.

“Without a sufficiently strong policy response, a drift in expectations away from the Bank’s inflation target can open the door to inflation remaining high and volatile for a long period of time,” Beaudry said in the text of a speech he’s giving in Edmonton, Alberta.

“The Bank’s resolve -- and people’s awareness of it -- will help Canada’s economy reach the target faster and with less pain than if the Bank is half-hearted and lets up too soon,” he said.

Eight straight hikes took the overnight rate to 4.5% last month and opposition NDP lawmakers propping up the Liberal government say the Bank is inviting needless job losses and a recession. The NDP is also pushing for more spending that could make the Bank’s inflation fight more difficult.

The consumer price index is running at 6.3%, down from a four-decade high of 8.1% set last June. Price gains have topped 2% since March 2021. (See: MNI INTERVIEW: BOC Too Optimistic On CPI Slowdown: Ex Official)

“While Canada may have turned the corner on inflation, we know that it will take time to get back to the Bank’s inflation target,” Beaudry said.

His remarks didn’t update the Bank’s view that policymakers are done hiking -- if their forecast of inflation returning to target in 2024 is met. Earlier Thursday Governor Tiff Macklem reiterated that “conditional pause” to lawmakers.

Investors have again started to muse over the prospect of another potential rate hike this week after the latest job report was far stronger than expected; before that, they were betting on a cut late this year as the economy faced recession.

Beaudry also pointed out Canada’s dollar could strengthen over time if investors notice that inflation is being wrestled down faster at home than abroad.