Tiff Macklem recommends not to worry about inflation, promising to keep interest rates low

The central bank’s Governor Tiff Macklem addressed readers of a major newspaper to clear up the situation with three consecutive months of inflation increases.

His statement was published on Thursday on the front page of the Financial Post, following the Statistics Canada’s report pointing to a 3.1% inflation gain in June. Although it was lower than 3.6% seen in May, the result still exceeds Macklem’s 1-3% control range.

The inflation is expected to reach about 3.9% in the third quarter, marking the largest number since the beginning of 2000s, but the hike after the COVID-19 crisis will be short-term.

“There’s no need to overreact to these temporary price gains,” – Macklem wrote. “You can be sure that we’ll keep the cost of living under control as the economy reopens.”

The Bank of Canada’s reaction to the pandemic has become a truly political issue. The Conservative opposition warns Macklem not to use the purchases of government bonds to finance Justin Trudeau’s spending plans. As the election is near, several high inflation results are also used to blame the Liberals.

In BoC’s opinion, the reasons of higher inflation are only temporary, as they are the result of supply chain issues caused by the pandemic and a return to normalcy in the prices of certain goods that fell during the initial lockdowns (e.g. gasoline).

“We may face more challenges and significant prices changes during the next few months, as we get back to more normal activities,” – Macklem noted. “Inflation is expected to return to our target range in 2022, as businesses work through these temporary factors and the people who lost their jobs during the pandemic get new ones.”

The article in Financial Post is an obvious sign that the central bank is trying to reach a larger audience with its promise to keeping inflation under control. No speeches from Macklem or other BoC’s officials are scheduled before the next policy decision on September 8, which will not include economic forecasts or a press conference.

“The economic recovery needs time. That’s why we’ve promised to keep our key lending rate at its lowest level until the economy fully rebounds,” – Macklem said, adding that the Bank doesn’t expect it until the second half of the next year.