The intensity and persistence of supply chain disruptions that have helped fuel the rising cost of living surprised the Bank of Canada, a senior bank official said Tuesday.
In a speech to Women in Capital Markets in Toronto, senior deputy governor Carolyn Rogers said a clear view of the future has been hard to come by over the last two years.
“What started as narrowly focused problems in a few key products — like computer chips — has spread to a wide range of goods,” Rogers said, according to the prepared text of her remarks released in Ottawa.
“The invasion of Ukraine intensified supply-chain problems and pushed up commodity prices and inflation worldwide.”
And now, Rogers said parts of China are under a renewed lockdown, causing further supply issues, transportation backlogs and uncertainty.
“These are things we didn’t foresee,” she said.
The supply chain disruptions have contributed to inflation rising to its highest rate in three decades.
The Bank of Canada raised its key interest rate target by a half of a percentage point last month to 1% and has warned more rate hikes are coming as it works to bring inflation back to its target of 2%.
Conservative leadership candidate Pierre Poilievre has been critical of the Bank of Canada and its decisions.
Rogers stressed the importance of the Bank of Canada’s independence in making its decisions and the work it has done to earn the trust of Canadians.
“The desire to have a public entity separate from both the banking sector and the political process, whose job is to guide the economy in the long-term best interest of its citizens, is what’s behind the existence of central banks around the world,” she said.
Rogers said Canadians trusted the bank to respond at the start of the pandemic when it slashed its key interest rate and began buying bonds to keep interest rates low, and they are counting on it to move now to lower inflation.
“We take that trust seriously,” she said.
Rogers noted that inflation running close to 7% and spreading to more everyday items is squeezing family budgets and putting pressure on businesses.
“High inflation here in Canada and around the world largely results from global pressures such as supply chain disruptions and elevated commodity prices. But with the Canadian economy starting to overheat, we can’t let demand get too far ahead of supply or we risk adding further to inflation.”
The Bank of Canada has said it expects inflation to average almost 6% in the first half of the year and remain well above its control range of 1% to 3% for the rest of this year.