Bank of Canada sees no clear end to supply chain issues

Deputy governor Toni Gravelle says the uncertainty caused by the pandemic and unprecedented economic conditions makes it hard to pinpoint when supply-chain problems will peak.

A senior Bank of Canada official says the central bank isn’t sure when supply-chain issues will work themselves out and ease inflationary pressures.

Deputy governor Toni Gravelle says the uncertainty caused by the pandemic and unprecedented economic conditions makes it hard to pinpoint when supply-chain problems will peak.

The central bank in October said it expected that peak to hit before the calendar turned to 2022, before gradually unwinding over the ensuing months.

Speaking virtually to the Surrey Board of Trade, Gravelle says it is difficult to gauge how quickly supply issues will be resolved, which is partly why the central bank has kept its key policy rate on hold.

The bank on Wednesday left the rate at 0.25 per cent and reiterated its previous guidance that it didn’t foresee any increases in the trendsetting rate until at least April.

Gravelle says while the bank still expects inflation to ease by the second half of next year, monetary policy-makers are watching inflation expectations and labour costs so they don’t cause a spiral of price increases.

“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,” Gravelle said in the prepared text of his speech.

“This could feed into inflation expectations and contribute to wage pressures, leading to a second round of prices increases.”