OTTAWA, Dec 9 (Reuters) – The Bank of Canada is concerned the factors fueling price increases, such as supply disruptions and related cost pressures, could last longer than expected, leading to more persistent inflation, an official said on Thursday.
Deputy Governor Toni Gravelle told a business audience there was much to be hopeful for as the pandemic recovery picked up pace. But he said with headline inflation running “considerably above” the central bank’s 1-3% control range, the risk it would stay above target was of greater concern.
“If supply disruptions and related cost pressures persist for longer than expected and strong goods demand continues, this would increase the likelihood of inflation remaining above our control range,” he said.
“This could feed into inflation expectations and contribute to wage pressures, leading to a second round of price increases,” he said. Annual inflation in October hit 4.7%, the highest level since February 2003.
Gravelle reiterated the central bank expected inflation to remain high into 2022, easing back to the 2% target in the second half of the year. The Bank on Wednesday held its key overnight interest rate at 0.25%, as expected, and repeated guidance that a first hike could come as soon as April.
(Reporting by Julie Gordon and David Ljunggren; Reuters Ottawa bureau, +1 647 480 7921; david.ljunggren@tr.com)
