Faster pace of inflation lasting longer than expected, says Bank of Canada head

Faster inflation persists

The head of the Bank of Canada is warning that the faster pace of price increases may persist longer than first thought, and slow the pace of Canada's economic recovery, as global supply-chain issues weigh on the domestic economy.

Annual inflation rates have run above the Bank of Canada's comfort zone since April, reaching 4.1 per cent in August. The central bank expects readings higher than its target of two-per-cent through the rest of the year.

Governor Tiff Macklem said bottlenecks in the international movement of goods and oil aren't easing as quickly as he and his counterparts from around the world expected.

Still, he believes the hiccups will only cause one-off price increases, rather than ongoing inflation.

What has happened globally is a sharp rebound in consumer spending particularly for goods that need to be shipped through supply chains that have been damaged by a sharp drop in demand last year, and ongoing COVID-19 outbreaks and public health measures.

All this affects inventories of in-demand consumer products and the delivery of parts needed to build things like cars, and pushes up transportation costs that get passed on to consumers.

And at the same time, shipping delays mean households can't get goods as fast as they want, meaning their spending is delayed, which bites into the pace of growth.

"We're still expecting a good rebound. It may be not quite as fast as we had" in July's forecast, Macklem said on a videoconference with reporters late Thursday.

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