By Ketki Saxena
Investing.com -- In an exclusive op-ed piece for the National Post, Canadian Bank Central Governor Tiff Macklem reiterated his commitment to bring inflation back to target, despite noting “that it looks like inflation may have peaked” following today’s CPI reading.
Canada's inflation rate fell to 7.6 percent in July, according to today’s report from Statistics Canada, easing down from June’s 39-year high of 8.1 percent, and marking the first monthly decrease for the first time in 12 months. The decrease was largely driven by a moderation in gasoline prices.
While acknowledging that today’s “inflation numbers offer a bit of relief”, Macklem noted that “unfortunately, it will take some time before inflation is back to normal”, and that the Canadian central bank’s “job is not done yet — it won’t be done until inflation gets back to the two percent target”.
Macklem outlined the falling price of gasoline, benchmark agricultural commodities, and shipping costs as key indicators of cooling inflation, noting that “The price of gasoline, which has contributed about one-fifth of overall inflation in recent months, declined from an average of $2.07 a litre in June to $1.88 a litre in July.”
The Bank of Canada Governor also touched on the Canadian housing market as a positive indicator of the effect that sharply rising rates are having on the Canadian economy, writing that “With higher mortgage costs, housing activity has slowed quickly after unsustainable growth during the pandemic, and housing prices are moderating.”
Despite the (relative) positive indicators of easing inflation seen in today’s CPI data, Macklem noted that “The bad news is that inflation will likely remain too high for some time”, and that “Prices for more than half of the goods and services that make up the CPI basket are still rising faster than 5%” - but referred largely to macro factors independent of its monetary policy.
The Central Banker noted that “Many of the global factors that have pushed up inflation won’t go away quickly enough — supply chain disruptions continue, geopolitical tensions are high, and commodity prices remain volatile.”
While touching on overly-inflamed domestic demand, the Central Bank governor also avoided any mention of historically low pandemic era interest rates as a root cause of the issue. Macklem noted instead that “Here at home, our economy has been running too hot. As Canadians finally enjoy a fully reopened economy, they want to buy more goods and services than our economy can produce. Businesses are having trouble keeping up with demand, and that’s leading to delays and higher prices. The result is broad-based inflation.”
However, the central banker did reiterate both the BoC's ability and commitment to tackling the inflation it explicates no great responsibility for creating. Macklem noted that “As the central bank, it’s our job to control inflation and that means we need to cool things down. That’s why we have been raising interest rates since March. In July, we took the unusual step of raising the policy interest rate by a full percentage point, to 2.5 percent.”
Macklem further explained the rationale for the BOC’s front-loading of monetary policy: “By acting forcefully in raising interest rates now, we are trying to avoid the need for even higher interest rates and a sharper slowing down the road”.
The overall tone from the Canadian central bank governor remained, despite today’s easing inflation data, overwhelming hawkish: in his concluding paragraph of the OpEd, Macklem writes forcefully that taming inflation is the bank’s job, “And we are determined to do it”.