The central bank will be maintaining its inflation targeting strategy for the foreseeable future
The Bank of Canada said that it is not counting on the longevity of the most recent spike in inflation as it is temporary and non-fundamental.
In April, the latest available data as of press time, inflation rose at its fastest pace in approximately a decade when it touched 3.4%. The central bank’s current inflation targeting strategy is aiming for a 2% rate.
However, the significant jump was largely due to the comparison to the same month last year, when the economy was labouring under the first full month of the COVID-19 pandemic.
“These base-year effects are, by definition, transitory – they will not persist beyond the next few months,” Deputy Governor Tim Lane said in a prepared speech. “What will persist until we see a complete recovery is the underlying slack in the economy.”
Lane said that this slack will represent a sustained downward pressure on inflation “as these base-year effects fade.”
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Lane stressed that the BoC remains optimistic about the national economy’s outlook in the next few months. Despite some weakness in the past quarter or so, renewed productivity – mainly through e-commerce and remote work – will help the economy’s recovery without undue influence on inflation, he added.
“There is no doubt the recession caused by the pandemic, like all recessions, will result in lost capacity and scarring,” Lane said. “But the accelerated digital transformation has supported resilience so much that we now think the damage to potential will be less than we earlier feared.”
