Inflation took up a lot of the statement, as was expected. Let’s summarize what the BOC said. First, they acknowledged that the inflation rate exceeds their band. It’s not at a level they’re comfortable with. They then point out that the big driver was gasoline prices, which collapsed at the onset of COVID, and have now returned to their more historic norm – this had a very big impact on the CPI. The BOC continues this point, arguing that many other prices which fell from a drying up of demand when COVID hit rebounded, taking another hit to the CPI metric. And finally, they then point to the international supply chain situation (bottlenecks, shortages, logistical issues, border closures, lack of raw materials, pullbacks in production, etc.). They point out that the overall supply chain complication had a big and fast impact on prices.

Overall the Bank’s logic and argument is strong and well thought out. They humbly admit that “we expect the factors pushing up inflation to be temporary, but their persistence and magnitude are uncertain, and we will be watching them closely.” This is an important sentence. The key point the Bank is making is that high gas prices, price rebounds, and supply chain concerns will all more or less go away by the second half of 2022, when they expect inflation to return to 2%. This is the big question. Finally, the BOC says that their bond purchasing program, or QE, will continue until the economy goes back to more normal growth and inflation subdues.

We can’t underscore how important this statement is, and how important the BOC’s next steps will be. If their analysis holds, we’ll have low rates continue, growth and inflation normalize, and a very comfortable landing from the difficulties of COVID. If their analysis and decision making is off, and if the boat is rocked, we may be in for some ongoing and longer term financial and economic difficulties. Fingers crossed.