Paul Beaudry: No two ways about it - why the Bank is committed to getting back to 2%

Introduction

Good afternoon. Bonjour tout le monde. It is a pleasure to be here in Edmonton.

We have all been going through challenging economic times recently. Almost exactly three years ago, the COVID-19 pandemic hit Canada, suddenly shutting down large parts of our economy. This upended our lives and livelihoods and created a huge disruption in financial markets. Fiscal and public health policies led the charge in tackling these dangers. The Bank of Canada played a key supporting role by reducing its policy interest rate to near zero and unblocking a financial system that was clogging up.

The recession caused by the pandemic was unprecedented. Canada lost over 3 million jobs, and the unemployment rate rose to 14% in May 2020. And, as many here likely recall, oil prices even briefly turned negative.

Fortunately, though, when the economy reopened after the mass closures, the rebound was also unprecedented. By the end of 2021, Canadian employment was 250,000 jobs above its pre-pandemic level, and the unemployment rate had fallen to 6%. But a storm was brewing. Supply chain bottlenecks, higher energy prices and a massive shift in global consumption patterns came together to spur inflationary pressures. The disruptions caused by the war in Ukraine only added fuel to this fire.

In response, the Bank raised its policy interest rate to 4.5% in a series of rapid hikes. These interest rate increases are working. Over the past few months, inflation has started to come down. Recently it reached 6.3%, down from a peak of 8.1% last summer. This is a welcome improvement. But inflation is still too high and far from the Bank's 2% target. At its current level, it continues to cause hardships for Canadians, especially the most vulnerable among us.