The Bank of Canada says inflation is still too high, but it is moving in the right direction

People shop at Walmart Supercentre amid fears of the spread of the coronavirus in Toronto, Ontario, Canada, March 13, 2020. REUTERS/Carlos Osorio

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OTTAWA (Reuters) – Canada’s inflation remains “very high” but is heading in the right direction, a Bank of Canada official said on Tuesday, adding that the central bank would do whatever was needed to bring price increases back to target. .

Deputy Governor Paul Beaudry, speaking to college students in Waterloo, Ontario, said while some have suggested that a recession may be necessary to tame rising prices, the central bank believes it can reduce the risk of a hard landing by clearly communicating its intentions.

“In August, inflation was 7%. And while we’re heading in the right direction, this is still very high,” Beaudry said in prepared remarks provided before the speech.

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“We will continue to take whatever actions are necessary to restore price stability to households and businesses and to maintain Canadians’ confidence in our ability to meet our mission of bringing inflation back to 2%,” he later added.

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Inflation slowed again in August, although both key and core measures remain well above target. Adding to the consumer crunch, grocery prices rose at their fastest pace in 41 years. Read more

Central banks fear that people will start to assume that inflation will continue to rise faster than the target, which could lead to price vortexes.

While some have argued that policymakers need to engineer a recession to avoid it, Beaudry said the bank is working to convince Canadians that the current period of high inflation is temporary and will tame high prices.

“Our message is designed to beat the noise,” Beaudry said. “The more effective a bank is in its steering role, the greater the chance of a soft landing – and the lower the risk of a hard landing.”

However, economists said that if consumer and business surveys due next month show inflation becomes more entrenched, the Bank of Canada may have to change its tune.

“The pace of the increases clearly shows that if a central bank had to choose between avoiding a recession and controlling inflation, it would choose the latter every time,” Royce Mendes, head of macro strategy at Desjardins group, said in a note.

The Bank of Canada boosted the interest rate by 300 basis points in six months, and indicated earlier this month that it is not yet finished. Money markets are betting on another 50 basis point increase in October to 3.75%. Read more

The Canadian dollar was trading 0.8% lower at 1.3360 per dollar, or 74.85 US cents.

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(Julie Gordon and David Leungren cover in Ottawa); Additional reporting by Fergal Smith in Toronto; Editing by Richard Boleyn

Our Standards: Thomson Reuters Trust Principles.

David Leungren

Thomson Reuters

Covering Canadian political, economic and general news as well as breaking news across North America, it was previously based in London and Moscow and this year’s Reuters Treasury Scoop Winner.

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