Bank of Canada Governor Tiff Macklem said he remains committed to the central bank’s 2% inflation target, even as price pressures are expected to temporarily overshoot that goal.
Macklem, in parliamentary testimony on Tuesday, cited the central bank’s long history of hitting that objective, and said he needs to worry about both upside and downside risks to its inflation outlook.
The comments come after the Bank of Canada released new forecasts on April 21 that show the biggest persistent overshoot of its 2% target in at least two decades.
“What can we do to assure Canadians that we will control inflation? We have a very clear mandate — we have a strong record now of 30 years of inflation targeting and we have consistently realized that objective,” Macklem told the House of Commons finance committee.
At the same time, a full recovery will take time time to complete, and that will keep downward pressure on price gains, he said.
inflation by citing the central bank’s decision not to preemptively raise rates until the economy’s recovery from Covid-19 is complete. Consumer price gains are expected to be at or above 2% for more than 70% of its forecast horizon, according to Bloomberg calculations on Bank of Canada data. In coming months, inflation is expected to accelerate to near 3%.
The central bank does have latitude to allow inflation to temporarily stray from its target, within a range of 1% to 3% — room to maneuver that Macklem said Wednesday he intends to utilize given the extraordinary nature of the pandemic.
Still, that didn’t stop the Bank of Canada last week from paring back its bond purchase program and accelerating the timetable for a possible interest-rate increase. Those moves made Canada the first major economy to signal its intent to reduce emergency levels of monetary stimulus.