Inflation Is More Complicated Than Thought, Recovery May Be Delayed: Bank of Canada

It seems a lot of people are confused about inflation, including the head of Canada’s central bank. Today, Bank of Canada (BoC) governor Tiff Macklem addressed the US Council on Foreign Relations. His address mostly focused on global currency, but it was the media Q&A where things got interesting. Over three questions, he made several conflicting points about inflation and the economy. At some point, he even acknowledged the issue is more complicated than he expected. But he was certain he’s right… but about what, was unclear.

Supply Shortages and Shipping Bottles Necks Exacerbate Inflation

Governor Macklem referenced a common headline these days — supply and shipping. There are well-established supply shortages and shipping congestion has exacerbated prices. Over the past few months, demand sparked by low rates has resulted in a shipping squeeze. These costs are pushed further by rising high fuel costs, and health-related capacity restrictions.

These factors began to appear at the end of the year, and don’t look as transitory as thought. Just yesterday, the National Bank of Canada said, it looks like stagflation. “Since August, a few things we’ve seen. The disruption to the supply chain and shipping bottlenecks — they’re continuing and they could be more persistent than we previously thought,” said the governor. 

Inflation Is An Illusion, But Due To Temporary Factors

Odd, but sums up Governor Macklem’s take, demonstrating how unknown the environment is. Responding to a question on inflation, he attributed it to both optics and the supply chain. That is, he dismissed high inflation as an illusion, but also blamed supply shortages.

By optics, I’m referring to the base effect. This is when a period of artificially low growth is compared to one with modest growth. As a result, the growth looks much larger than the actual impact. It amplifies the reading, but it’s not really felt. This is true for segments, but economists feel he’s exaggerating the exaggeration. Still, Macklem reiterated the point to his global audience.

“… the implications for inflation will be temporary. Prices have come back up, part of that is base year effect [since] prices were very low a year ago. They’ve normalized part of that,” he said.  

Supply chain disruption is more complicated, with less clarity on when they’ll end. Public health restrictions have reduced staffing capacity, resulting in lower production. A microchip shortage is pushing the cost of vehicles and electronics higher. Rising demand sparked by low rates are also a factor. There’s a shortage of houses and cars, but let’s not forget sales are near a record high. We’re ignoring that last point though. 

The disruptions are more difficult to resolve without cooling demand using policy. This makes it hard to figure out how long it will last, for obvious reasons. The governor still believes they’re temporary, but sounded less sure.

He confidently assured people, “we will work through these supply disruptions…” Right before adding, “…but I will say they are proving to be more complicated and they could last a little longer than we previously thought.” No shit. 

The Inflation Is Temporary… But Persistent?  

Got it. Inflation doesn’t exist, but if it does it’s just temporary… but there’s no foreseeable end. I know, it sounds confusing. Yet, that’s what he said during the Q&A.. “… we do expect that these effects will be temporary even if they are somewhat persistent,” said Yoda. I mean, Governor Macklem.

There was good news though. “…we do expect to continue to see a good recovery in the second half of this year,” he added. Though he went on to say, “… it could be a little slower…  it could take a little longer than we expected…” 

To wrap up, inflation is temporary but persistent. It’s an illusion but also caused by fundamental factors. Inflation will temper itself soon. Or it might not, but the economy will recover in the second half. Unless it recovers slower, and then it takes longer. If that gave you zero insights, congrats. You are about as informed as the head of Canada’s central bank as of this morning.

Like this post? Like us on Facebook for the next one in your feed.



We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Nathan 3 years ago

    Central banks need to stop meddling with free markets. They are destroying everything and there is no turning back. I wouldnt be upset if our government reduced their mandate to only stopping the most severe outcomes such as run away inflation. They have turned our markets into state directed scams that only benefit the already rich. We might as well stop working and just borrow money to invest in stocks and real estate because you make 20x doing that over doing actual work.

    • Pickle Rick 3 years ago

      And surrender dollar supremacy? We’re way past the point that free-markets can be restored without a massive economic shock.

  • Paul 3 years ago

    Instilling the confidence we need to start hoarding everything. Thanks Tiff for giving me so much reassurance that I now have to go out and stockpile because no one is running the show.

  • Rob 3 years ago

    As John Mayer said, “there is no such thing as a real world, just a lie you have to rise above.”

    These people, entrusted with responsibilities that have massive impact on the lives of real people, are not qualified. We talk about ‘brain drain’ here often. People with the actual knowledge to run the BoC probably don’t want the job.

    We have suffered Crow, Thiessen, Dodge, Carney, Poloz , and now Macklem.

    Rock-star Carney is now working on the climate crisis. That should prove my point. I hope Greta sees through him and takes him on. But I guess we’re doomed one way or the other.

    Like boiling a frog, we’ve been glorifying this group for 30 years while they failed us miserably.

  • david 3 years ago

    Tiff painted himself into a corner. He cut rates to almost 0 and bought almost all new debt emitted by the government (it admits itself there was not enough appetite from the market to buy them).

    As a result it fuelled the housing market which became the only driver for growth.

    Now we have inflation, and the housing market started the drag the economy. Tiff has no choice but to go on with tappering and increasing rates next year, impacting our only driver of growth even more.

    The commodity is the only good spot that helps our economy but it seems Tiff does not like oil either because he is totally woke. 2022 will be interesting

    • Ahmed 3 years ago

      It was done before Tiff, Poloz is who cut it down to near zero before anyone even knew what the impact would be. They needed to stop collecting payments, AND give people money to make the payments. Insanity.

      Tiff isn’t innocent though. The bond program continued under him, and he was responsible for setting expectations in January when prices really took off after he said “we need the growth.”

  • Ahmed 3 years ago

    You can’t increase the money supply by 10% per year and then be surprised when lower output and higher prices occur. This was intentional, and basic economics.

    He’s a professor, and has decades of experience at the Bank of Canada. He understands how this works, he’s just pretending to be an innocent fool.

  • Steve 3 years ago

    Honestly he did well considering him and his minions spent hours drafting up a report on normalizing a “more” global economy (read central digital currency) only to be hit with a gauntlet of questions pertaining to inflation.

    The Bank of Canada does not release the velocity of money but based on GDP to M2 ratio, the economy has been treading around a rate of just over 1x since pandemic began (with little movement too boot). This is astronomical given the amount of M2 and knowing how highly reliant the GDP is on the RE industry. We know what comes next when we have high rates of inflation coupled with sustained low velocity and it is not good.

  • Just wondering 3 years ago

    If the BOC is offering word salad than it’s hard to figure out what drives the policy or even if its driven by anything — or just the whim of the day “We need a nother 3 billion dollars printed”

    Since its a federal (?) institution wouldn’t it be nice if they were driven by clear public measurable policy that they can be verified on and held accountable on? Or am I dreaming too much?

    All we see is word salad and fake statistics such as core CPI.

  • Scott 3 years ago

    Minister’s directive
    (2) If, notwithstanding the consultations provided for in subsection (1), there should emerge a difference of opinion between the Minister and the Bank concerning the monetary policy to be followed, the Minister may, after consultation with the Governor and with the approval of the Governor in Council, give to the Governor a written directive concerning monetary policy, in specific terms and applicable for a specified period, and the Bank shall comply with that directive.

    Maybe he was just repeating what our illustrious Finance Minister believes…unicorns and fairy dust…

Comments are closed.