Bank Of Canada Governor Warns Against Overreacting To Short-Term Inflation

In an op-ed article published in The Financial Post, Bank of Canada Governor Tiff Macklem has warned against overreacting to short-term inflation that has caused a jump in Canadian consumer prices.

The central banker’s opinion piece was published a day after Statistics Canada reported that inflation rose 3.1% in June. While a decline from the 3.6% recorded in May, consumer price gains have exceeded the Bank of Canada’s 1% to 3% control range since April of this year.

Central bank officials expect inflation to reach an average of 3.9% in the third quarter, a level not seen since the early 2000s, but maintains that the run-up in the aftermath of the pandemic will be temporary.

"We shouldn’t overreact to these temporary price increases," Macklem wrote. "You can be confident that we will keep the cost of living under control as the economy reopens."

The Bank of Canada’s response to the pandemic has become a political issue, with the opposition Conservative Party warning Macklem against using purchases of government bonds to finance Justin Trudeau’s spending plans. With the prime minister nearing an election call, high inflation readings are also being blamed on the Liberal government.

The Bank of Canada views the forces behind higher inflation as temporary, saying they are a result of supply chain disruptions caused by the pandemic and a return to normality in the prices of some goods that plunged during the initial lockdowns, such as gasoline.

"Over the next few months, there may be more disturbances and sharp price movements as we return to more normal activities," Macklem wrote. "Inflation should move back inside our target range next year as businesses work through these temporary factors and the people who lost their jobs during the pandemic rejoin the workforce."