TORONTO, March 24 (Reuters) - Higher-than-expectedinflation in Canada has been the result of both transitoryfactors and underlying economic strength, the Bank of Canadasaid on Wednesday, and reminded investors that its pledge tohold interest rates low is a conditional one.
Below are additional comments from Bank of Canada GovernorMark Carney"s appearance in Ottawa:
ROLE OF OLYMPICS IN RECENT CPI RISE
"We are talking about one month worth of data and one ofthe biggest elements of that inflation was temporary in thehotel accommodation in BC (British Columbia) for the Olympics,so the order of magnitude of that and the relative weight ofthat in the CPI index was higher than we would have expected.It accounts for more that half the shock.
We"re not having the Olympics again for the foreseeablefuture, but there are other elements in there and on the whole,domestic demand and activity in Canada has been slightly firmerthan we had expected."
ON CHOICE OF LANGUAGE
"Take the words for what they are: inflation slightlyfirmer, a combination of temporary and other factors, the broadbrush dynamics on inflation unchanged, and we"ll update inApril."
ON WORDING OF THE CONDITIONAL COMMITMENT
"We"ve reiterated every time we"ve spoke since (making thecommitment in April 2009) because someone"s always asked aboutit, or we"ve said it proactively, that that commitment isexplicitly conditional on the outlook for inflation becauseit"s consistent with our mandate. That"s our word. Our word isabout that path, and that path being the right path.
"That"s the standard we need to be held against and as wesaid many times, it"s not a promise, it"s an expectation. It"sbased on our projection and our expectations for inflation.We"ll update that in April and lay out that view in moredetail."
ON ECONOMIC GROWTH
"I would say that if you look at the balance of the secondhalf of last year, you know, where we were in the fall ...third quarter, fourth quarter, second half was more or less asexpected. You had that big import shock in the third quarter,which was unwound in the fourth."
"First quarter is looking stronger ... than we hadprojected ... There"s elements that ... are probably beingtaken forward."
"One of the things we"ll determine is how much does thefirst half of 2010, how different does that actually lookversus where we were."
ON UNDERLYING INFLATION
"Underlying inflation is running less than 2 percent.There"ll be wiggles around that and we"ll put a finer point onit in our April MPR in terms of our expectations for the pathof total and core (inflation) and the Canadian economy ingeneral."
ON INFLATION DYNAMICS
"The underlying dynamics affecting inflation haven"tchanged including the starting point which is an economy with afair degree of slack in it, a considerable degree in it, bothin the labour market and capacity in general even afteraccounting for, as the bank has done since April of 2009reconfirmed in October, even after accounting for the type ofrestructuring and productivity drags you get from thatrestructuring because of all the issues we"ve been talkingabout today. So that"s a key element."
"We do see some potential for moderation on the wage side,that continuing that we have seen recently and thatcounterposed against strength in domestic demand factorsbalancing out."
"In terms of the exact path for inflation, it"s not goingto surprise you if I say we"re going to work and update that incoming the weeks. A report on that on April 22 in the MPR so we(won"t) get drawn directly on that right now. But there hasn"tbeen and people should just take a step back, there hasn"t beena fundamental change in the underlying dynamics here and thosedynamics are pretty broad brushed. You know, pretty significantand it starts with an economy that has is just emerging from avery deep recession."
ON INFLATION IN MEDIUM TERM
"There"s a host of factors that affect the medium termoutlook for inflation, what we can influence and ... rates areas low as they can go, they"re at emergency levels ... At somepoint they will change, but they will change consistent withachieving the medium term outlook. There"s no magic data pointand there"s no simple signpost. That"s why we"ve talked aboutthis ... in terms of being conditional on that outlook. It"snot the outlook for inflation next quarter, or next month. It"sthe outlook for inflation over the policy horizon."
ON NATURE OF RECOVERY
"The broad strokes of the recovery are as expected,slightly firmer, but as expected ... we"re still not at thatstage where we"ve had the rotation of demand in Canada andcertainly haven"t had the rotation internationally. So wehaven"t had the rotation from public to private and acrosseconomies internationally. That"s the latter half of this yearinto 2011. That is one of the biggest determinants on therelevant outlook."
ON C$ AND THE INFLATION TARGET
"We haven"t changed our way we look at the dollar. We lookat the dollar as a key factor but one of many factors thataffect the outlook for activity and inflation in Canada. In theend, that"s why we"re monitoring where the currency is, whereother factors are, in order to achieve our inflation target."
ON CURRENCY VOLATILITY FOR BUSINESSES
"With respect to strategies to address currency strength,weakness, volatility, I have sympathies with elements of thatresearch and other research on it where ... both globalsourcing and global markets helps provide some natural hedgesto that currency volatility and a number of firms have donethat. That said, it"s hard to totally insulate and there"s notevidence that this is widespread yet and where there isn"tevidence of progress is on productivity, which is one of thecore responses to currency strength at a time when there isevidence of considerable productivity gains elsewhere."
ON THE ECONOMIC LANDSCAPE
"We have some great entrepreneurs in this country, past andpresent and I"m sure we will in the future and there have beenpretty sizable changes in policy relatively recently so therecould be some lags into response to that. What I think our jobin part is to do is to point out when there have been sizablechanges in the economic landscape. In our view, the bank"sview, there very much have been sizable changes in the economiclandscape which demand a quicker and deeper response on thepart of business."
ON CONDITIONAL COMMITMENT TO HOLD RATES AT RECORD LOW
"We have to use different words to keep your attention.Look, nothing has changed about the conditional commitment. Itis a view of the best path or first part of the path ofinterest rates in order to achieve the inflation target.Obviously as time goes on, the horizon of that commitment, theamount of time left in it, it shortens. But it"s conditional onthe outlook for inflation. We"re going to update that outlookin April and take judgments about the appropriateness of thatpath."
ON THE NEED FOR HIGHER PRODUCTIVITY IN CANADA
"This was a seminal event, this recession. Things aredifferent and it accelerated some changes and Canadianbusinesses are going to have to become more productive, if onlyto try to match the response of U.S. businesses to therecession, which ... have been much more aggressive and as aresult are much more competitive."
ON EXCHANGE RATES
"An adjustment in real exchange rates is part and parcel ofglobal rebalancing, first point. Second, what"s at stake hereis enormous in order of magnitude. And the adjustment of thosereal effective exchange rates of all major currencies is, as Isay, an important component of that rebalancing. It"s not theonly component of that rebalancing." (Reporting by Ka Yan Ng, John McCrank, Claire Sibonney andJennifer Kwan in Toronto, and Louise Egan, Randall Palmer andDavid Ljunggren in Ottawa; editing by Jeffrey Hodgson)
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