BoC’s non-executive Deputy Governor, Nicolas Vincent, provided a closer look into the challenges Canada faces concerning inflationary pressures, specifically highlighting the direct correlation between businesses’ price setting patterns and the persistent nature of inflation.
Vincent noted in a speech, despite some progress, “the downward path of inflation over the past year has been slower than anticipated. Inflation has proven to be stickier than many expected.”
Explaining the backdrop, Vincent highlighted that firms, during their recovery phase post-pandemic, faced “a rapid increase in their costs as well as high demand for their products and services”. This spurred an amplified response from firms in terms of pricing – adjusting their prices more frequently and in larger increments than was the norm. ”
He accentuated the potential implications of these new pricing strategies, stating they are “intimately linked to the stronger-than-expected inflation we’ve seen.”
He cautioned, “if recent pricing behaviour settles into a new normal, it could complicate our return to low, stable, and predictable inflation.”
