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

People shop at a Walmart Supercenter amid the spread of the coronavirus 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 moving in the right direction, a Bank of Canada official said Tuesday, adding that the central bank will do whatever it takes to reverse price increases to get to the target.

Speaking to university students in Waterloo, Ontario, Vice Governor Paul Beaudry said that while some have suggested a recession might be necessary to tame rising prices, the central bank believed it could reduce the risk of a hard landing. by clearly communicating its intentions.

“Inflation was 7% in August. While we are on the right track, it is still too high,” Beaudry said in prepared remarks ahead of the speech.

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“We will continue to take all measures necessary to restore price stability for households and businesses and to maintain Canadian confidence that we can deliver on our mandate to bring inflation down to 2%,” he later added. up.

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Inflation slowed again in August, although both general and core measures remain well above target. In addition to the squeeze for consumers, supermarket prices rose at the fastest rate in 41 years. read more

Central banks are concerned that people are assuming inflation will continue to rise faster than its target, which could lead to price spirals.

While some have argued that policymakers need to bring about a recession to prevent it, Beaudry said the bank is trying to convince Canadians that the current period of high inflation is temporary and will tame rising prices.

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

Still, economists said that if consumer and business surveys expected next month show inflation has strengthened, the Bank of Canada may need to change its tone.

“The pace of the increases clearly shows that if the central bank has to choose 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 note.

The Bank of Canada raised its key rate by 300 basis points in six months and signaled earlier this month that it was not ready yet. Money markets are targeting another 50bp gain in October to 3.75%. read more

Against the greenback, the Canadian dollar traded 0.8% lower at 1.3360, 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; adaptation by Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

David Ljunggren

Thomson Reuters

Covers Canadian political, economic and general news, as well as breaking news in North America, formerly based in London and Moscow and winner of Reuters’ Treasury Scoop of the Year.

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