‘Perfect storm’ fueling inflation but ‘this is not the 1970s’: Bank of Canada deputy

Inflation is at a multi-decade high, but the situation is different than the 1970s, a senior Bank of Canada official said Thursday.

Inflation is at a multi-decade high, but the situation is different than the 1970s when high inflation was combined with high levels of joblessness and slow or recessionary economic growth, a senior Bank of Canada official said Thursday.

In a speech in Montreal, Bank of Canada deputy governor Toni Gravelle said there has been a “perfect storm” that has helped boost inflation as the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine have combined to boost prices.

However, he said the economy is also “running pretty hot” as quarter-over-quarter growth in the economy in the second half of last year averaged six per cent on an annualized basis.

Gravelle also pointed to the unemployment rate at 5.2 per cent compared with an average of around eight per cent from 1976 to 1982.

“This is not the 1970s all over again,” he said, according to the prepared text of his speech released in Ottawa.

Gravelle said the bank expected inflation to average almost six per cent in the first half of the year, but with the March reading above what it was projecting it will likely be revising its forecast.

The Bank of Canada raised its key interest rate target by half a percentage point to one per cent last month in a bid to help slow inflation and warned that more rate hikes are coming.

“We are confronted with an economy that is showing clear signs of overheating, very tight labour markets and this perfect inflationary storm of global events and preference shifts,” he said according to the text.