Tuesday , July 14 2020

‘Bank of Canada’s incoming governor faces stagflation’

Bloomberg

Incoming Bank of Canada Governor Tiff Macklem will face a combination of rising prices and stagnant growth as the economy struggles to recover from coronavirus (Covid-19) pandemic.
That’s the forecast from Canadian economist David Rosenberg, who sees prices increasing as consumers feel comfortable shopping again and production costs rising even as the economy underperforms — an unusual combination known as stagflation.
“We’re going to end up with a minor form of stagflation. I think that’s beyond the next two or three years,” Rosenberg, founder of Rosenberg Research and Associates Inc., said during an interview with BNN Bloomberg TV. “That’s what Tiff Macklem is going to have to deal with.”
Macklem will take over as Bank of Canada governor on June 3 after Stephen Poloz finished his term.
Rosenberg, former North American chief economist for Merrill Lynch, said the shift towards localised supply chains, stockpiled inventories, and lower productivity from Covid-19 will all lead to higher costs and then inflation.
This puts the Bank of Canada in a “bit of conundrum” because if the economy is weak and unemployment is high, it will be under pressure to keep policy unduly accommodative, he said.

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