Bank of Canada says inflation still too high, but headed in the right direction

Bank of Canada says inflation still too high, but headed in the right direction

People shop at a Walmart supermarket amid fears of the coronavirus spreading in Toronto, Ontario, Canada March 13, 2020. REUTERS/Carlos Osorio

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OTTAWA, Sept 20 (Reuters) – Inflation in Canada remains “too high”, but is heading in the right direction, a Bank of Canada official said on Tuesday, adding that the central bank would do whatever is necessary to bring price increases back to their target. .

Deputy Governor Paul Beaudry, speaking to university students in Waterloo, Ont., said while some have suggested a recession may be needed to rein in rising prices, the central bank believes it could reduce the risk of a hard landing by clearly communicating your intentions.

“In August, inflation was 7%. Although we are heading in the right direction, it is still too high,” Beaudry said in prepared remarks ahead of the speech.

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“We will continue to take all necessary steps to restore price stability for households and businesses and to maintain the confidence of Canadians that we can fulfill our mandate to bring inflation down to 2%,” he added. later.

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Inflation slowed again in August, although headline and core measures remain well above target. Adding to the pinch for consumers, grocery store prices rose at their fastest pace in 41 years. Read more

Central banks are concerned that people will start to assume that inflation will continue to rise faster than the target, which could lead to a price spiral.

While some have argued that policymakers need to engineer a recession to avoid this, Beaudry said the bank is working to convince Canadians that the current period of high inflation is temporary and will tame soaring prices.

“Our posts are designed to cut through the noise,” Beaudry said. “The more effective the Bank can be in its guiding role, the greater the chance of a soft landing – and the lower the risk of a hard landing.”

Still, economists have said that if consumer and business surveys due out next month show inflation has become more entrenched, the Bank of Canada may need to change its tune.

“The pace of the increases clearly shows that if the central bank has to make a choice between avoiding a recession and controlling inflation, it will choose the latter every time,” said Royce Mendes, head of macro strategy at Desjardins Group, in a rating.

The Bank of Canada raised its key rate by 300 basis points in six months and earlier this month signaled that it had not yet done so. Money markets are betting on another 50 basis point rise in October to 3.75%. Read more

The Canadian dollar was trading down 0.8% at 1.3360 per greenback, or 74.85 US cents.

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Reporting by Julie Gordon and David Ljunggren in Ottawa; additional reporting by Fergal Smith in Toronto; edited by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

David Ljunggren

Thomson Reuters

Covers political, economic and general news from Canada as well as breaking news across North America, previously based in London and Moscow and winner of Reuters Treasury Scoop of the Year.

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