The Globe and Mail reports in its Thursday, July 15, edition that at the Bank of Canada, 3 per cent is the new 2 per cent. The Globe's David Parkinson writes that the BOC has not officially moved its yardsticks, nor is it likely to. Mr. Parkinson believes the BOC is signalling that it will not only tolerate inflation above its formal 2-per-cent target into 2024, it fully expects it.
In fact, the BOC's own policies have engineered it that way.
On Wednesday, Bank of Canada Governor Tiff Macklem spelled out how the bank's pledge to keep its policy interest rate at 0.25 per cent until the economy reaches full capacity will send inflation over the 2-per-cent target. He said: "Because we're holding the policy rate at the effective lower bound until [the output gap] closes, and there are some lags in monetary policy, you can expect to see some modest excess demand in 202. That produces a modest increase in inflation above the target, before we go back toward target in 2024."
Mr. Parkinson says this means that 2 per cent is not the point at which the BOC will blink. The Globe says 3 per cent may now be the more meaningful limit to the BOC's capacity for inflation, at least in this most unusual economic cycle.
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