(OTTAWA) Bank of Canada Governor Tiff Macklem warns that there is some uncertainty about how quickly the highest inflation in three decades would return to the central bank’s comfort zone.
Posted at 5:00 p.m.
He attributed this to the unique circumstances surrounding the pandemic and the global reopening of local economies.
The annual rate of inflation rose in December to 4.8%, a level not seen since September 1991.
In testimony to the Standing Senate Committee on Banking, Commerce and Commerce on Wednesday, Macklem said annual inflation could hover around 5.0% in the first half of 2022, noting the impact this is expected to have on low-income Canadians as gas and food prices rise.
In his opening statement to the committee, Macklem said conditions should normalize and inflation rates should come down as the pandemic subsides.
Interest rates will have to rise to bring inflation back to the bank’s target of 2.0%, he warned, recalling that the Bank of Canada was no longer promising to keep rates at their floor value.
In its most recent monetary policy decision, announced late last month, the Bank of Canada kept its key rate unchanged at 0.25%, where it has been since the pandemic began in March 2020.
Statistics Canada reported Tuesday that November’s real gross domestic product rose just above levels seen in February 2020, just before the pandemic began.
Mr Macklem also noted that employment was above pre-pandemic levels, companies were struggling to fill vacancies and wage increases were accelerating.
High inflation, an economy that ended 2021 on solid footing and a labor market in better shape than before the pandemic lead economists to believe that the Bank of Canada will raise its key rate in March.
Macklem did not say when the upward trajectory for rates would begin or how many hikes might occur over the course of the year.