Posted: 23 Jun. 2020 5 min. read

Health risks are rising, Bank of Canada to use inflation targeting framework for recovery

Global health risks are increasing. From the start of April to the end of May, the number of net new global cases had flattened at around 120,000 per day, but during June, the 10-day moving average of new cases has climbed towards 180,000 per day. The infection rates in some major emerging economies is troubling, as is the increase in the United States. Notably, there are accelerating cases in 23 out of 50 US States. Given Canada’s deep economic integration on a north-south axis, and trade-oriented economy, the increases in cases abroad we’re observing is a clear threat to the Canadian recovery.

Bank of Canada Governor Tiff Macklem gave a speech to the Canadian Clubs and Cercles Canadiens entitled “Monetary policy in the context of COVID-19”. The Governor stressed the Bank’s mandate to deliver low, stable and predictable inflation and argued how that this approach is still the right one in the current environment. He highlighted how the pandemic has disrupted both supply and demand, including the massive impact on labour conditions, which warranted the dramatic policy actions that the central bank has deployed, including taking interest rates to effectively their lower bound and launching asset purchases. However, the Governor stress the high degree of uncertainty about the outlook. Although growth is remerging post lockdown, Governor Macklem stressed, “it will be important not to assume that these growth rates will continue beyond the reopening phase. The pandemic is likely to inflict some lasting damage to demand and supply. The recovery will likely be prolonged and bumpy, with the potential for setbacks along the way.” The economic shocks in recent months have lowered inflation and the Bank has taken policy actions to avoid deflation and return inflation towards the 2 percent target. In this regard, the Governor stated “our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” My main takeaway is that the Bank has deployed massive stimulus, is currently assessing the path of recovery, and stands ready to do more if necessary. The commitment to inflation targeting and the current inflation target is unchanged.

US existing home sales fell by 9.7 percent month-over-month to 3.91 million annualized units in May, below financial market expectations for a decline to 4.12 million. Global health risks are increasing. From the start of April to the end of May, the number of net new global cases had flattened at around 120,000 per day, but during June, the 10-day moving average of new cases has climbed towards 180,000 per day. The infection rates in some major emerging economies is troubling, as is the increase in the United States. Notably, there are accelerating cases in 23 out of 50 US States. Given Canada’s deep economic integration on a north-south axis, and trade-oriented economy, the increases in cases abroad we’re observing is a clear threat to the Canadian recovery.

Bank of Canada Governor Tiff Macklem gave a speech to the Canadian Clubs and Cercles Canadiens entitled “Monetary policy in the context of COVID-19”. The Governor stressed the Bank’s mandate to deliver low, stable and predictable inflation and argued how that this approach is still the right one in the current environment. He highlighted how the pandemic has disrupted both supply and demand, including the massive impact on labour conditions, which warranted the dramatic policy actions that the central bank has deployed, including taking interest rates to effectively their lower bound and launching asset purchases. However, the Governor stress the high degree of uncertainty about the outlook. Although growth is remerging post lockdown, Governor Macklem stressed, “it will be important not to assume that these growth rates will continue beyond the reopening phase. The pandemic is likely to inflict some lasting damage to demand and supply. The recovery will likely be prolonged and bumpy, with the potential for setbacks along the way.” The economic shocks in recent months have lowered inflation and the Bank has taken policy actions to avoid deflation and return inflation towards the 2 percent target. In this regard, the Governor stated “our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” My main takeaway is that the Bank has deployed massive stimulus, is currently assessing the path of recovery, and stands ready to do more if necessary. The commitment to inflation targeting and the current inflation target is unchanged.

US existing home sales fell by 9.7 percent month-over-month to 3.91 million annualized units in May, below financial market expectations for a decline to 4.12 million. 

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A regularly updated snapshot by Deloitte Economics that provides commentary from Chief Economist, Craig Alexander on the latest developments shaping Canadian and international economies including, economic growth, business investment, trade, and market activity. Deloitte analysis gives you the knowledge to tackle the most challenging business issues of today.

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Craig Alexander

Craig Alexander

Chief Economist and Executive Advisor

Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.