Bank of Canada delivers verdict on economic recovery – Governor outlines extent of inflation risk
Bank of Canada Governor Tiff Macklem said the economic recovery is on track despite disappointing output growth, but warned there’s a risk high inflation could prove more persistent than expected.
Gross domestic product suffered a shock contraction in the second quarter, and data since then suggest economic growth in the next three-month period will fall short of the central bank’s forecast for a 7.3% annualized gain.
“The track for GDP is probably a little bit slower than what we put out in July, but we do continue to expect a good rebound,” Macklem said at a press conference Thursday, reiterating the bank’s prediction for a strong second half of the year.
His comments came after a speech delivered virtually to the Council on Foreign Relations in Washington in which he said the international monetary and financial system will come under mounting pressure as economies withdraw extraordinary stimulus.
In a question-and-answer session before the press conference, Macklem said supply disruptions and price pressures are “proving more complicated, they are continuing, so there is some risk that there’s a bit more persistence than we previously thought.”
However, he added there are still “good reasons” to believe high inflation will be temporary.
Annual consumer price gains hit 4.1% in August, the highest since 2003 and the fifth consecutive month of inflation readings above the Bank of Canada’s 3% cap. Macklem will release a new set of forecasts for output and inflation at the bank’s Oct. 27 policy decision, where it’s expected to taper its purchases of government bonds to CA$1 billion a week from the existing pace of CA$2 billion.
In his prepared remarks, the governor noted that “tighter financial conditions globally will suit some countries better than others” as regions rebound from the COVID-19 crisis at different paces. He also stressed the need for balance between long-run progress and short-run challenges as the international system evolves.
“As the recovery from the pandemic progresses, and major economies begin to remove exceptional monetary stimulus, the system will likely come under more pressure,” Macklem said.
- By Bloomberg08 Oct 2021
- by Erik Hertzberg