Authors: Promit Mukherjee and David Ljunggren
OTTAWA, Sept 10 (Askume) – Disruptions in global trade could make it more difficult for the Bank of Canada to consistently achieve its 2% inflation target and it must continue to control price increases and ensure a balance is maintained amid economic growth, Bank of Canada Governor Tiff Macklem said on Tuesday.
Canada’s inflation rate has continued to fall this year as interest rates remained at a decade high of 5% for more than a year before the Bank of Canada cut interest rates three times in a row since June.
As globalization slows, the cost of global commodities may not fall to the same extent, putting further upward pressure on inflation, McCallum said.
“Trade disruptions can also increase inflation volatility,” he said in a speech to the Canadian-British Chamber of Commerce in London, adding that supply shocks could have an impact on prices.
“Trade disruptions could mean wider inflation deviations from the 2% target.”
This, he said, means the bank is focusing on risk management to balance inflation and growth, and investing to better understand global supply chains.
Canada’s overall inflation rate fell to 2.5% in July, the lowest in 40 months.
Canada is a small, open economy that relies heavily on trade, making it particularly vulnerable to disruptions.
Supply shocks during the pandemic are creating a tough trade-off for central banks, Macklem said, because monetary policy can’t stabilize growth and inflation at the same time.
“We are updating our models to take advantage of situations where periods of uncertainty make central forecasts less reliable,” Macklem said. He added that the bank is also using more micro-level data to track and understand the consequences of trade and industrial policy.
He said that in a changing trade landscape, Canada needs to be prepared for trade disruptions that seem inevitable. Even as global trade is being reshaped, reshaped and redirected, it must ensure that inflation remains “low, stable and predictable.”
He said while the Bank of Canada does not set trade policy, it needs to understand changes in global trade because they affect Canadians and drive up costs and inflation.
As inflation remains within the target range of 1-3% this year, the central bank became the first G7 central bank to start cutting borrowing costs in June. The bank has cut its key policy rate by 75 basis points this year to 4.25%.
(Askume Editorial)
((Askume Ottawa Bureau, [email protected] ))
Keywords: Canadian CE Bank/
