The forecasts on the evolution of inflation that the Bank of Canada had simmered are out of date and below reality, acknowledged Deputy Governor Sharon Kozicki on Friday.
• Read also: Rethinking maternity clothing in a context of inflation
• Read also: After inflation, let’s tackle the inevitable challenges
• Read also: Quebecers give up François Legault’s $500
The latter explained, during a speech delivered virtually before the Colloquium on Macroeconomics and Monetary Policy Federal Reserve Bank of San Francisco, that the Russian invasion of Ukraine has turned the forecasts upside down.
“The Russian invasion of Ukraine is increasing inflationary pressures in the world and in our country. This is mainly because it has boosted world prices for oil and other commodities. As a result, short-term inflation should be higher than what we forecast in January,” acknowledged the Deputy Governor.
Despite everything, the Bank of Canada is not losing sight of its objective of bringing the inflation rate back to around the target of 2% per year. A first step in this direction was taken at the beginning of the month, when the key rate was raised to 0.5%, following spending two years at the floor at 0.25% in order to stimulate the economy battered by the pandemic.
“Our main objective and our unwavering resolve is to bring inflation back to the 2% target. We have taken measures in this direction and will continue to do so,” said Ms. Kozicki, hinting at a possible increase in the key rate during the next update, on April 13.
“Inflation is too high in the country, conditions are tight in the labor markets and demand is booming,” acknowledged the specialist, noting that a 3 to 4% rise in global inflation can represent nearly $1,000 in additional expenses per year, for a household spending $2,000 per month.
“My colleagues and I are aware that this situation is particularly difficult for low-income households, as they tend to spend more of their income […] consumer products such as gasoline and food,” said Sharon Kozicki.
