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Free AccessMNI POLICY: BOC: Covid Distorts CPI, Economy Faces Lasting Hit
By Greg Quinn
OTTAWA (MNI) - The Bank of Canada said the consumer price index anchoring
its mandate has likely overestimated the extent of falling prices amid Covid-19,
and policymakers must focus on the potential for longer-term weakness in an
economy facing permanent damage.
In the short run, consumer inflation has likely declined less than
indicated by the CPI report, Deputy Governor Tim Lane said in the text of a
speech Wednesday. Statistics Canada today said CPI fell 0.2% in April from a
year earlier, the first such decline since 2009 and well outside the BOC's 1%-3%
target range.
"In this setting, monetary policy needs to be even more forward looking
than usual, seeing beyond the shutdown to its potential implications for the
subsequent recovery," Lane said. The balance of risks to inflation is downward,
he said.
The recovery will be hobbled as some industries need more time to adapt to
new health restrictions and consumers may shy away from some activities, Lane
said. The country's exporters and oil industries also had struggles before the
pandemic that will be hard to overcome now.
"There are many possible paths to economic recovery," Lane said. "The
impacts of the pandemic may be far-reaching, and the effects on some sectors
could be permanent."
"While the steps we have taken should help, we are likely to emerge from
the shutdown with both demand and supply weaker than before," Lane said. The BOC
has cut interest rates to about zero and swollen its balance sheet to a record
to keep financial markets working.
Other speech highlights:
- "Both business and consumer confidence may also remain depressed, partly
reflecting uncertainty related to a second wave of outbreaks. Individuals may
remain reluctant to fully emerge -- both physically and economically -- when the
containment measures are lifted.
- The pandemic itself could also result in structural changes in the economy.
Even if the economy as a whole bounces back quickly when the shutdown is eased,
some sectors may be permanently affected."
- Fiscal action "is particularly important in the current context of high
household indebtedness, which could amplify the impact of the shock."
- "Stimulating demand cannot do much to influence inflation as long as the
stores, and indeed much of the economy, remain closed."
--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com
[TOPICS: M$C$$$,M$$CR$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.