Julie Gordon and Steve Scherer

OTTAWA, (Reuters) – The Bank of Canada has rightly warned that inflation will continue well into next year. It also indicated that interest rates could start rising sooner than originally thought. Former Canadian central banker David Dodge stated this on Thursday.

The central bank held https://www.reuters.com/world/americas/bank-canada-signals-it-could-hike-rates-sooner-than-expected-2021-10-27 its key overnight interest rate at 0.25% on Wednesday, but nudged forward its guidance on a hike to as soon as April 2022. According to the central bank, inflation is expected to remain within its control zone of 1%-3% for most of 2022. September’s inflation was 4.4%.

The last time Canadian inflation https://www.reuters.com/article/canada-economy-inflation-idCAKBN2HA1GX was at this level was in February 2003, when Dodge was the central bank’s governor. The key rate was increased three times by Dodge during 2002. It reached 2.75% and then climbed to 3.0% in February 2003.

A graphic showing Canada’s inflation and interest rate, 2002-04:

https://graphics.reuters.com/CANADA-ECONOMY/INFLATION1/zgvomrzkwvd/chart.png

Tiff Macklem now serves as the governor. Since March 2013, the key rate was at 0.25%. Stephen Poloz was Governor of the Central Bank when rates were last raised in October 2018.

Below is a visual of the Canadian inflation and interest rates for 2019-2021

https://graphics.reuters.com/CANADA-ECONOMY/INFLATION2/egvbkmqaopq/chart.png

Dodge explained that 2021 will be a shock because of the pandemic.

Dodge stated, “more-or-less right, finally.” Many economists believed that inflation would be greater than what the central bank predicted before Wednesday.

“The bank claims, rightly so, that there was a greater inflation increase than anticipated over the current period. This is not surprising. Forecasts can be a guide. He said.

He said, “But they’re also saying that they believe it will go on now, a little longer than they anticipated. Which I think is correct, and that’s what they are reacting too.”

Dodge stated that rates will rise again in the next year and that the central banks message was to focus on the fundamental economic data when setting policy. He said that was exactly right.