BoC Governor Tiff Macklem in a speech today raised concerns about the long-term implications of slowing globalization on inflation, indicating that price pressures may remain elevated for some time. Macklem highlighted that “with globalization slowing, the cost of global goods may not decline to the same degree,” which could result in upward pressure on inflation.
Macklem also pointed to the ongoing risks of trade disruptions, noting that such disruptions could increase the “variability” of inflation, making it harder to control price stability. He drew on lessons from the pandemic, emphasizing that supply shocks, especially when the economy is overheated, can have an outsized impact on inflation volatility.
The BoC governor acknowledged the challenges supply shocks present to central banks, stating that “monetary policy can’t stabilize growth and inflation at the same time.” This, he added, requires central banks to focus on risk management, balancing the risks of rising inflation against the downside to economic growth.
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