Bank of Canada Governor Tiff Macklem said the central bank remains committed to a 2% inflation target even though consumer prices are expected to temporarily rise above that level.
In parliamentary testimony, Macklem cited the central bank’s long history of hitting its 2% inflation objective, and said he needs to worry about both upside and downside risks to its inflation outlook.
The comments come after the Bank of Canada released new forecasts on April 21 that show the biggest persistent overshoot of its 2% inflation target in two decades.
"What can we do to assure Canadians that we will control inflation? We have a very clear mandate -- we have a strong record now of 30 years of inflation targeting and we have consistently realized that objective," Macklem told the House of Commons Finance Committee.
At the same time, a full recovery will take time to complete, and that will keep downward pressure on price gains, Macklem added.
Last week, Macklem justified his tolerance for inflation above 2% by citing the central bank’s decision not to pre-emptively raise interest rates until the economy’s recovery from COVID-19 is complete. In coming months, inflation is expected to accelerate to near 3%, according to Bank of Canada data.
The central bank does have latitude to allow inflation to temporarily stray from its target, within a range of 1% to 3%, room that Macklem said he intends to utilize given the extraordinary nature of the global pandemic.
Still, that didn’t stop the Bank of Canada last week from paring back its bond purchase program and accelerating the timetable for a possible interest-rate increases. Canada became the first major economy to signal its intent to reduce emergency levels of monetary stimulus.
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