(Ottawa) The Bank of Canada is not sure when supply chain issues will resolve and relieve inflationary pressures, a central bank deputy governor said Thursday.
In a speech to the Surrey, BC Chamber of Commerce, Toni Gravelle stressed that it was difficult to know precisely when the effects of supply disruptions would peak, due to the unusual nature of the pandemic.
The central bank said in October that it expected the peak to occur before the 2021 holiday season, only to gradually ease in the following months.
However, Gravelle said it was always difficult to assess how quickly supply problems would resolve themselves, which is part of the reason why the central bank has still not raised its key interest rate.
On Wednesday, the bank left its overnight rate at 0.25% and reiterated its previous forecast that it will not move on this front until April at the earliest.
Mr. Gravelle clarified that while the central bank still expects inflation to fall by the second half of next year, monetary policy makers are monitoring inflation expectations and the costs of inflation. labor, so that they do not spiral upward prices.
“If supply disruptions and related cost pressures persist longer than expected and demand for goods remains strong, the likelihood of inflation staying above our target range would be greater,” he said. Mr. Gravelle explained in the prepared text of his speech.
“It could impact inflation expectations and increase wage pressures, leading to a second round of price hikes. ”
Annual inflation hit an 18-year high in October, when the consumer price index rose 4.7% from the same month a year earlier.
The Bank of Canada’s mandate is to keep inflation as close as possible to the midpoint of the 1.0% to 3.0% range, but the central bank has allowed it to rise to help the economy recover. recovering from the sharp slowdown the country experienced at the start of the COVID-19 pandemic.
Supply chain problems have helped drive inflation up as consumers have focused their spending on goods rather than services where physical contact is more difficult to avoid. There have also been increases in shipping costs, delays in ports and difficulties for some manufacturers to source parts, which has all contributed to the increase in costs.
As a result, average inflation for goods this year was 4.4%, compared to 2.1% for services, said Gravelle. In the two decades leading up to the pandemic, these rates were 1.4% and 2.4%, respectively.
Gravelle said the bank expects consumers to shift spending towards services, which should ease pressure on goods and help resolve trade bottlenecks, so supply can catch up. his delay.
While there are early signs that some supply constraints, such as those for semiconductor chips, are easing, Gravelle warned that other issues, including flooding in B.C., will likely exacerbate backlogs in the country. port of Vancouver.
The deputy governor also noted that the Omicron variant of the virus causing COVID-19 could hinder the return to more balanced consumption patterns between goods and services, and thus exacerbate the upward pressure on the prices of goods exposed to supply constraints.