(Vancouver) Bank of Canada Governor Tiff Macklem said Monday that the bank was surprised this year at how the combination of large supply chain shocks and an overheated economy would affect inflation.
He says Russia’s invasion of Ukraine also came as a surprise, which drove up energy prices and helped boost already rising inflation.
Macklem says this unexpected geopolitical change underscores the longer-term challenge of keeping inflation low as protectionism increases and the deflationary benefits of opening up global economies fade.
He adds that the bank has learned lessons from the year, including that it is harder to restore supply than to restore demand, that averages can mask inflationary pressures and that supply disruptions are more inflationary. when the economy is overheating.
Macklem’s comments come after the Bank of Canada raised its key interest rate by half a percentage point last week to 4.25%, the highest since January 2008.
Since March, the Bank of Canada has raised its key rate seven times in a row in an effort to lower inflation and slow the economy.