Bank of Canada governor warns geopolitical trends could make inflation fight harder

VANCOUVER –

Bank of Canada Governor Tiff Macklem says the financial institution was stunned this 12 months how the mixture of huge provide chain shocks and an overheated financial system would play out on inflation.

He says Russia’s invasion of Ukraine was additionally a shock, which led to larger vitality costs and helped turbocharge already rising inflation.

Macklem says the sudden geopolitical motion factors to the longer-term problem of preserving inflation low as protectionism will increase, and the deflationary advantages of worldwide economies opening up fade.

He says the financial institution has discovered classes from the 12 months, together with that restoring provide is more durable than restoring demand, that averages can obscure inflationary stress and that provide disruptions are extra inflationary when the financial system is overheated.

Macklem’s feedback come after the Bank of Canada hiked its key rate of interest by half a proportion level final week, bringing it to 4.25 per cent — the best it has been since January 2008.

Since March, the Bank of Canada has hiked its key rate of interest seven consecutive occasions in an effort to deliver inflation down and gradual the financial system.

This report by The Canadian Press was first printed Dec. 12, 2022.