Soaring

oil prices

are raising concerns among economists that

inflation there will spread

to other segments of the economy. Against that backdrop,

Bank of Canada

senior deputy governor Carolyn Rogers acknowledged Thursday that the persistence of inflation following the pandemic surprised central bankers and delayed raising

interest rates.

“Our forecasting models were built on decades-long experience with low and stable inflation. They suggested that the shocks would be temporary and that we shouldn’t raise interest rates quickly and risk delaying the economic recovery,” she said during a speech in Brandon, Man.

“In hindsight, the supply constraints proved much more persistent, and the surge in demand that followed the reopening of the economy after the pandemic was bigger and lasted longer than we had expected.”

She said the Bank of Canada, which ultimately was able to control the situation by responding with a series of interest rate increases and by ensuring Canadians understood that the longterm inflation target remained around two per cent, took important lessons from that recent “difficult” experience.

“We’re improving our ability to detect and assess supply shocks,” she said, adding that the Bank of Canada is incorporating more real-time data and more frequent outreach to businesses to help us gauge what’s going on in the economy.

“When big shocks are hitting the economy, we’re looking beyond a single baseline forecast and using scenario analysis. We did this last year after the initial U.S. tariff announcements.”

Rogers said it’s too early to assess the impact of rising oil prices on Canada’s economic growth. Higher oil prices for longer would boost income from energy exports, but also squeeze consumers and businesses, she said. Tighter financial conditions and more uncertainty could weigh on spending and investment.

There are clearer remedies when it comes to protectionist U.S. trade policy, Rogers said, including doing more to remove inter-provincial trade barriers that act as domestic tariffs and prevent goods and services from moving around the country efficiently.

“There is still much more we could do on this to help our economy, and none of it requires us to negotiate with President Trump,” she said.

 

“It’s an obvious place to put more effort.”

Rogers also addressed affordability concerns in Canada, including around housing and food. She said it is a complicated situation that can’t be controlled by interest rates alone, which affect the whole economy rather than targeted areas.

However, she urged business to make investments that help boost Canada’s productivity, which would in turn reduce affordability concerns.

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“Productivity gains that are shared with workers deliver higher incomes,” she said. “They can also lower costs, making goods and services more affordable. And an economy that is more productive can weather shocks and uncertainty better.”

In a question and answer period following her speech, Rogers said she understands that it is difficult for businesses to invest with so much uncertainty around trade and geopolitics but urged them to focus on what would be gained down the road.

“In the long run, that productivity gain that comes from investing, whether it’s investing in your employees’ training, or investing in technology, or investing in machinery, equipment or something that helps you produce more in the long run, that investment pays off,” she said. “It makes you more resilient. It makes you more adaptable.”

• Email: bshecter@postmedia.com