Macklem concedes inflation debate to ‘Team Permanent,’ hints at second half-point hike

‘It’s fair to say that Team Transitory has disbanded’

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Bank of Canada governor Tiff Macklem said he and other central bankers no longer think inflation will be a relatively short-term phenomenon, while hinting strongly that the central bank will continue to push interest rates higher at a relatively aggressive pace.

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“It’s fair to say that Team Transitory has disbanded,” Macklem said during testimony at the House finance committee, referring to the heated debate that rose up alongside last year’s burst of inflation.

Macklem, his American counterpart, Federal Reserve chair Jerome Powell, and others bet that sharp price increases a year ago would fade as supply disruptions eased. However, that never happened, and demand only continued to strengthen, as economies recovered far faster from the COVID recession than many thought possible. The result is the biggest inflation scare since the early 1980s.

Canada’s consumer price index surged to 6.7 per cent in March from a year earlier, as the jobless rate dropped to a record, leaving Macklem with little choice but to cede the debate to “Team Permanent.” The Bank of Canada’s new economic forecast sees headline inflation at 4.7 per cent at the end of the year, well outside the central bank’s comfort zone of one per cent to three per cent.