Geopolitical trends could affect fight against inflation: Bank of Canada

By The Canadian Press and Astrid Agbayani

Bank of Canada Governor Tiff Macklem warns inflation could be harder to control with changing geopolitical trends.

In a year-end speech, Macklem says there were many surprises in 2022, including Russia’s invasion of Ukraine, which led to higher energy prices and increased inflation.

He says the bank underestimated the difficulty of restoring supply chains while the economy was reaching its limits and unable to keep up with demands.

Macklem says this combination affected inflation.

“Over the long term it seems likely that we won’t have the same disinflationary forces that we’ve had for the last 30 years. These potential developments could make it harder to bring inflation back to two per cent and keep it there,” he said.

The Bank of Canada hiked its interest rate last week, bringing it to 4.25 per cent, the highest it’s been since January 2008. the BOC has hiked key interest rates seven consecutive times since March in an effort to bring down inflation and slow the economy.

“Yes, we are going through a difficult adjustment. The economy is slowing. We expect it’s pretty much stalled,” said Macklem.

“The adjustment will not be easy but restoring price stability is the most important thing we can do to improve the economic and financial well-being of Canadians.”

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Macklem says the bank has learned lessons from the year and emphasized that rate hikes will be dependent on incoming data.

“When snow melts, when we get to the spring, we should see much clearer evidence that inflation is moving down,” Macklem said.

Canada’s annual inflation rate slowed to 6.9 per cent in October after peaking at 8.1 per cent in July.

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