(Kitco News) The latest take on what “transitory” inflation really means came from the Bank of Canada (BoC) governor Tiff Macklem.
The BoC governor described inflation as “transitory but not short-lived,” noting that it will be around for longer than expected.
“I think transitory to economists, means sort of not permanent,” Macklem said in an interview with CTV’s Question Period with Evan Solomon. “I think to a lot of people, transitory means it’s going to be over quickly and maybe I don’t know exactly what the right word is, but it’s probably something like, you know, transitory but not short-lived.”
The latest inflation numbers out of Canada showed inflation running at 4.4% in September, with the BoC estimating price pressures accelerating to 5% by the end of this year.
The BoC governor also took the opportunity to reassure Canadians that the central bank will keep rising prices under control. “We have the tools, we have the mandate, and we will be adjusting our tools to bring inflation back to target,” Macklem added.
The BoC surprised the markets at the end of October when it ended its quantitative easing while holding the key interest rate steady.
“The Bank is ending quantitative easing (QE) and moving into the reinvestment phase, during which it will purchase Government of Canada bonds solely to replace maturing bonds,” the BoC said in a statement.
The BoC also moved up its rate hike timeline to next year. “We said it’s going to be sometime around the middle of next year,” Macklem explained during the interview. “If you want it in months, sometime between April and September.”
Gold has rallied in response, with the precious metal priced in Canadian dollars last trading at seven-week highs – $2,272.22, up 0.32% on the day.
In the U.S., all eyes are on the latest inflation data, which will be out on Wednesday. The market consensus is calling for October CPI to come in at 5.8% on an annual basis.
Some economists expect the U.S. inflation rate to rise to 6% by the end of 2021. “Surging housing costs, labor costs, energy costs, and second-hand car prices are likely to mean headline inflation then pushes above 6% in December, with core inflation moving above 5%,” said ING chief International economist James Knightley.
At its November meeting, the Federal Reserve acknowledged uncertainty around higher inflation.
“Inflation has come in higher than expected. Bottlenecks have been more persistent and are on track to persist well into next year. I don’t think we are behind the curve. The policy is well-positioned to address the range of plausible outcomes. It will be premature to raise rates today. We want to see the labor market heal more,” Fed Chair Jerome Powell said at a conference that followed the Fed’s interest rate announcement.
Powell also attempted to clarify the definition behind transitory. “Inflation in the medium-term … is our job. The level of inflation that we have right now is not consistent with price stability,” he said. “For us, transitory has meant that it won’t leave behind permanent or persistently higher inflation … We acknowledge uncertainty around transitory.”
During the interview, BoC governor Macklem was also asked about Bitcoin and whether the cryptocurrency is part of Canada’s digital future. “Let me be clear, Bitcoin is not a digital currency,” he replied. “People do not use Bitcoin, to buy things.”
Macklem also referred to bitcoin as an investment.
Regarding developing Canada’s own central bank digital currency (CBDC), it’s up to the Minister of Finance.
“We have banknotes, and we’re going to have banknotes, at least for the whole time that I’m Governor, they are not going away,” Macklem said. “At the same time, we know our economy is becoming more digital, and the pandemic has accelerated that.”