Bank of Canada Worries About Disinflation

Disinflation Is A Bigger Risk To Global Economy Than Inflation

The Bank of Canada is more worried about falling price pressures than the threat of rising inflation, said senior deputy governor of the central bank, Tiff Macklem.
 The senior central bank official was in Montreal on Friday, presenting a lecture at Concordia University’s John Molson School of Business, about the low inflation in the current economic climate. During his presentation he said that the Canadian economy is suffering from a mixture of good and bad disinflation.
Rising competition in the retail sector is an example of “good” disinflation. However, continued slack in the economy is an example of “bad” disinflation, he said.
It is not just Canada that is suffering from low inflation. Macklem said inflation has fallen by 1.5% in advanced economies during the last two years. He added that consumer prices in Canada are hovering around 1%, below the central bank’s target of 2%.
“With inflation persistently below target, we are more concerned about downside risks to inflation than upside ones,” he said.
During the question and answer period of his presentation, Macklem also touched on the impact the Federal Reserve’s quantitative easing program has on the world economy. Although the Federal Reserve is cutting back its stimulus spending, it has pumped massive amounts of liquidity in to the global system, which has raised fears that it will eventually lead to high inflation.