(Montreal) Inflation is at its highest level in several decades, but the situation is different from the 1970s, when rising prices were accompanied by high unemployment and slow or negative economic growth, a deputy Bank of Canada governor stressed Thursday.
Posted at 12:40 p.m
Speaking in Montreal to the Association of Quebec Economists, Toni Gravelle pointed out that a “storm of factors” helped fuel inflation as the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine combined would have driven prices up.
However, Gravelle notes that the economy is “in full swing” as the economy’s quarter-on-quarter growth averaged 6% on an annualized basis in the second half of last year.
The Deputy Governor also noted the unemployment rate was 5.2%, while its 1976-82 average was about 8.0%.
“We’re a long way from reliving the 1970s,” he said in the text of his speech, published in Ottawa.
According to Mr Gravelle, the bank expected average inflation to be close to 6.0% for the first half of the year, but with the March reading coming in higher than expected, it is likely to revise its forecasts.
The Bank of Canada raised interest rates by half a percentage point to 1.0% last month in a bid to curb inflation. The central bank also warned of further rate hikes.
“The economy is showing clear signs of overheating and labor markets are very tight. You also have this inflationary mix of global upheaval and shifts in consumer preferences,” Gravelle said.
“All of this shows that the policy rate of 1.0% is stimulating the economy too much, especially with inflation well above the upper limit of our target range. »
The other difference between now and the 1970s lies in the Bank of Canada’s inflation target agreement with the federal government, Gravelle pointed out. The monetary policy framework, first adopted in 1991, has helped keep both inflation and future inflation expectations low, he said.