BoC’s Macklem Sounds Inflation Alarm Amid Global Tensions

BoC Governor Tiff Macklem provided a sobering insight into Canada’s economic prospects during a parliamentary committee session overnight. Highlighting the central bank’s decision to maintain policy rate at 5.00% last week, Macklem emphasized the decision was taken to allow monetary policy “time to do its job.” However, he shared concerns that any reduction in inflation is “likely to be slow” and notably mentioned that “inflationary risks have increased.”

Despite expectations for inflation to slowly revert to 2% target by 2025, the Governor expressed apprehension, stating, “we’re worried that higher energy prices and persistence in underlying inflation are slowing progress.”

Macklem highlighted escalating global challenges that could further complicate Canada’s inflation trajectory. “Overall, inflationary risks have increased since July,” he noted. The recent forecast from the BoC projects inflation on a “higher path than we expected last summer.”

Additionally, Macklem pinpointed rising global tensions, specifically citing “the war in Israel and Gaza,” as factors potentially driving energy prices up and disrupting supply chains, which could, in turn, amplify inflation pressures worldwide.

Outlook for Canada’s economic growth also remains subdued, according to Macklem. “The economy has entered a period of weaker growth,” he stated. GDP growth is anticipated to linger below 1% over the next several quarters before a potential upturn in late 2024, with an optimistic projection of a rise to 2.5% in 2025.

Full remarks of BoC Macklem here.