BoC's Gravelle: Warns inflationary pressures could last longer than expected

In a speech on Thursday, Bank of Canada Deputy Governor Toni Gravelle warned that supply disruptions and related cost pressures could last longer than expected, boosting the likelihood of Consumer Price Inflation (CPI) remaining above the bank's control range, according to Reuters. This could feed into inflation expectations and contribute to wage pressures, Gravelle added, leading to second-round price increases. 

Additional Remarks

"Although there is much to be hopeful for as we approach full recovery, materialization of upside risks to CPI is of greater concern."

"The risk that supply disruptions last longer than expected figured prominently in our decision leading up to the December 8 rate announcement."

"We believe inflation will ease over time as supply catches up and that medium to long-term inflation expectations remain well-anchored."

"While there are signs some supply constraints are easing, most remain largely unresolved and it is hard to pinpoint when impact of supply disruptions will peak."

"There is a risk the Omicron variant of Covid-19 could hold back services consumption and exacerbate upward pressure on goods suffering from supply constraints."

"The degree of excess supply and demand varies across sectors, which means our typical measure of slack comes with a higher degree of uncertainty."

"Only recently have we seen a meaningful increase in services consumption, but it is still 4% below where it was before the pandemic."

"Customers can be expected to resume spending on a more typical share of their income on services."

Market Reaction

CAD did not see any notable reaction to the comments at the time.