Bank of Canada Says Inflation Could Remain Hot If Pressures Persist

The Bank of Canada said on Thursday that inflation could remain higher than projected if supply imbalances and pressures on capacity persist, which might lead it to reduce stimulus more quickly than currently expected, Reuters reported. When asked during a news conference if above-target inflation could be a sign there is less slack in the economy than the central bank is projecting, Deputy Governor Tim Lane said it was a “certainly a possibility.” Inflation hit 3.4% in April, its fastest pace in a decade, mostly due to base-year effects and high commodity prices. The Bank of Canada targets the 2% mid-point of a 1-3% inflation control range. The bank believes the supply bottlenecks and shipping capacity shortages that have developed as economies around the world rebound from COVID-19 are temporary, Lane said. “If those pressures on capacity actually persist, then we could actually see inflation above target in a more persistent manner,” he said. “If that happens, of course it would have implications for our inflation outlook and for our monetary policy going forward.” In April, the bank said it expected economic slack to be absorbed in the second half of 2022, signaling it could start hiking rates that year. Read more.