Bank of Canada deputy governor cites strength of economic recovery as a cause for inflation

The Bank of Canada’s deputy governor is blaming a “perfect storm” of factors for driving the country’s inflation to a decades-high rate, as one Conservative party leadership candidate says the rising prices is reason enough for the head of the bank to lose his job.

In a speech in Montreal on May 12, Bank of Canada deputy governor Toni Gravelle said the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine have combined to send inflation soaring.

Gravelle said the situation is different in several key respects to the late 1970s, when high inflation was combined with an unemployment rate of around eight per cent, compared to the current 5.2 per cent, and the overall economy was slowing or recessionary.

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

Gravelle’s speech comes a day after Conservative leadership candidate Pierre Poilievre, who has been critical of the Bank of Canada throughout the pandemic, said during a leadership debate that he would remove governor Tiff Macklem because of sky-high inflation.

Prime Minister Justin Trudeau responded to those comments during a press conference on May 12, emphasizing the central bank’s independence from the government of the day and how that has played a positive role in Canada’s economic reputation globally.

“The fact that one of the leading candidates for the Conservative Party of Canada seems to profoundly either misunderstand that, or not care about the facts at all, is somewhat disappointing in an era where we need more responsible leadership, not less,” he said.

Poilievre’s Conservative opponents have also been critical about his fiery comments.

“Pierre Poilievre’s plan is to fire the Bank of Canada Governor so he can politically interfere in monetary policy and impose his risky internet currency agenda,” said Brampton, Ont. Mayor and Conservative leadership candidate Patrick Brown on May 12.

Jean Charest, Quebec’s former premier, called Poilievre’s remarks irresponsible.

Leslyn Lewis, a social conservative who placed third in the party’s 2020 leadership race before being elected as an MP for Ontario in last year’s federal election, said after Wednesday’s debate that she found the comment concerning, saying it “undermines credibility in our economic system.”

During his speech, 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.