BoC’s Gravelle says high inflation environment not a repeat of 1970s conditions

MONTREAL — A senior Bank of Canada official says 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.

In a speech in Montreal, Bank of Canada deputy governor Toni Gravelle says 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.

Gravelle says 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.

However, he says the economy is “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.

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 has warned higher rates are coming.

This report by The Canadian Press was first published May 12, 2022.

The Canadian Press