(January 28 – 11:00 ET) – Canada’s central bank must remain vigilant because “low and stable inflation is a crucial ingredient for a durable, healthy economic expansion,”
Bank of Canada Governor Gordon Thiessen told the Metropolitan Halifax Chamber of Commerce in a speech yesterday.

Mr. Thiessen emphasized that, over time, this credible commitment to inflation control also “sets other positive developments in motion. As credibility rises, uncertainty about future inflation diminishes. Interest rates are lower than otherwise and investment in machinery, equipment, and technology increases, leading to stronger economic growth over the longer run.”

He said that the economy registered a strong performance in 1999, expanding by close to 4 per cent between the fourth quarter of 1998 and the fourth quarter of 1999 and “employment has been growing strongly, taking the national unemployment rate down to an 18-year low of just under 7 per cent.”

The Governor said that information received since the last Monetary Policy Report suggests that, as we look ahead, there could be more momentum of demand in Canada than thought earlier “because of greater strength both in the world economy, especially in the United States, and in global commodity markets.” For this year, growth could be somewhat higher—in the upper half of the 2 3/4 to 3 3/4 per cent range that the Bank suggested in the autumn. These recent developments continue to point to the inflation risks that the Bank highlighted in November.

“While conventional measures suggest that the economy may now be operating at capacity, it is quite likely that structural changes have raised the output potential of our economy. But we are not sure by how much.”

The Governor pointed out that, because of the strong momentum of demand and because of the uncertainty surrounding the conventional estimates of the economy’s capacity to produce, “the Bank must … continue to watch for leading signs of future price and cost pressures and stand ready to respond promptly if such signs emerge.”
-IE Staff