Skip to content

BoC's Gravelle says "perfect storm" fueling inflation, but key differences from '70s

The Bank of Canada's deputy governor is blaming a "perfect storm" of factors for driving the country's inflation to a decades-high rate, as one Conservative party leadership candidate says the rising prices is reason enough for the head of the bank t

The Bank of Canada's deputy governor is blaming a "perfect storm" of factors for driving the country's inflation to a decades-high rate, as one Conservative party leadership candidate says the rising prices is reason enough for the head of the bank to lose his job.

In a speech in Montreal Thursday, Bank of Canada deputy governor Toni Gravelle said the strength of the economic recovery, supply chain disruptions and the Russian invasion of Ukraine have combined to send inflation soaring.

He said the economy is "running pretty hot" as quarter-over-quarter growth in the economy in the second half of last year averaged six per cent on an annualized basis.

Gravelle said the situation is different in several key respects to the late 1970s, when high inflation was combined with an unemployment rate of around eight per cent, compared to the current 5.2 per cent, and the overall economy was slowing or recessionary. 

"This is not the 1970s all over again," he said, according to the prepared text of his speech released in Ottawa.

Gravelle's speech comes a day after Conservative leadership candidate Pierre Poilievre, who has been critical of the Bank of Canada throughout the pandemic, said during a leadership debate that he would remove governor Tiff Macklem because of sky-high inflation.

Prime Minister Justin Trudeau responded to those comments during a press conference Thursday, emphasizing the central bank's independence from the government of the day and how that has played a positive role in Canada's economic reputation globally.

"The fact that one of the leading candidates for the Conservative Party of Canada ... seems to profoundly either misunderstand that, or not care about the facts at all, is somewhat disappointing in an era where we need more responsible leadership, not less," he said.

Poilievre's Conservative opponents have also been critical about his fiery comments. 

"Pierre Poilievre's plan is to fire the Bank of Canada Governor so he can politically interfere in monetary policy and impose his risky internet currency agenda," said Brampton, Ont. Mayor and Conservative leadership candidate Patrick Brown on Thursday.

Jean Charest, Quebec's former premier, called Poilievre's remarks irresponsible.

Leslyn Lewis, a social conservative who placed third in the party's 2020 leadership race before being elected as an MP for Ontario in last year's federal election, said after Wednesday's debate that she found the comment concerning, saying it "undermines credibility in our economic system.''

Rick Petersen, former Conservative leadership candidate in the 2020 race who co-founded the recently launched group Centre Ice Conservatives – which advocates for candidates to speak to mainstream issues in order to grow the party – also weighed in, characterizing Poilievre's statement as being designed to grab headlines. 

"It's not a realistic approach, but it's an astute campaign move– draws attention, hammers home his views that I don't agree with, but he's drawing attention in a way that resonates. He dominated the front-page coverage this morning," the Edmonton businessman said in an interview Thursday.

During his speech, Gravellesaid the bank expected inflation to average almost six per cent in the first half of the year, but with the March reading above what it was projecting, it will likely be revising its forecast.

The Bank of Canada raised its key interest rate target by half a percentage point to one per cent last month in a bid to help slow inflation and warned that more rate hikes are coming.

"We are confronted with an economy that is showing clear signs of overheating, very tight labour markets and this perfect inflationary storm of global events and preference shifts," he said according to the text.

"All of this means that our policy rate, at one per cent, is too stimulative, especially when inflation is running significantly above the top of our control range."

The other difference between now and the 1970s, Gravelle said, was the Bank of Canada’s inflation targeting agreement with the federal government. He said the monetary policy framework, which was first adopted in 1991, has helped keep both inflation and expectations for future inflation low.

Trudeau said Thursday that the government and the Bank of Canada each have important roles to play in taming inflation. 

"The Bank of Canada has control over interest rates and monetary policy and ensures that the decisions that are taken are going to lower inflation," he said. "On the government side, we have a responsibility to make sure we're doing things that don't further enhance inflation, but that also provide respite and support for Canadians."

This report by The Canadian Press was first published May 12, 2022.

– With files from Craig Wong and Stephanie Taylor

Adena Ali, The Canadian Press