Bank of Canada is concerned about a possibility of higher inflation

According to a Bank of Canada Deputy Governor Tim Lane, the BoC worries about the possibility that inflation may appear to be stronger than expected, and policy makers are ready to adjust their policies in case it’s necessary.

On Wednesday, Lane pointed to the importance of agility in making decisions, reminding how the central bank adjusted policy during the pandemic as inflation started growing faster than expected.

Although the BoC predicts an inflation slowdown, Lane says policymakers are more concerned about growth risks to their forecasts.

“Yes, we now expect supply disruptions to be solved and inflation to slow down quickly during the second half of 2022, but we are alert to the risk that inflation may again be more persistent,” – Lane admitted. “We will be flexible, and if it’s necessary, strong in using our monetary policy tools to solve any potential issue, just like we did during these turbulent times.”

The statement seems to be an attempt to assure Canadians and investors that in spite of their optimism about a temporary inflation, policy makers are ready to act fast in case they are wrong. According to Statistics Canada, the inflation reached a 30-years record level of 5.1% last month.

The Bank of Canada has predicted such results, and it expects the inflation to slow down to 3% by the end of 2022.

Nevertheless, the numbers point to a massive price pressure. In January, shelter costs were up by 6.2%, marking the largest gain since February 1990. Meanwhile, prices for food from stores went up by 6.5%, which is the fastest annual hike since May 2009.

Lane says the Bank expects the inflation to remain about 5% over the first half of the year, but it’s more focused on the risk of higher results.

The central bank is expected to start its rate-increase cycle at the next meeting in March. Markets predict 7 rate hikes during the next 12 months.


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