Bank of Canada's Deputy Governor, Nicolas Vincent, expressed concerns over the persistent inflation rates in his first speech to the Chamber of Commerce of Metropolitan Montreal on Tuesday. Vincent stated that businesses are raising their prices more frequently and by larger amounts than they did before the pandemic, contributing to higher-than-expected inflation.
According to Vincent's prepared remarks, these larger and more frequent price increases from businesses are "intimately linked" to the stronger-than-expected inflation observed over the last year. Although he noted that pricing behavior by firms has been shifting closer to normal since the beginning of 2023, progress has been slow.
Recent research from the central bank indicates that price increases have closely mirrored the cost increases businesses have faced. However, even stable profit margins would mean customers are carrying the entire burden of higher prices. This observation has led to a reevaluation of the relationship between inflation and its drivers by the Bank of Canada.
"The impact of our recent discoveries shouldn't be underestimated. They force us to revisit some of the assumptions we make in our economic models as well as question the relationship between inflation and its drivers," Vincent said.
Amid this economic scenario, corporate profits have drawn significant attention post-pandemic. Critics, including the NDP, have questioned the fairness of rising profits during a period of high inflation and called on the federal government to implement windfall taxes. The governing Liberals have also singled out the country's major grocers for rising prices, asking them to present a plan to stabilize prices by Thanksgiving or face consequences.
As these discussions continue, Vincent's comments underscore a growing concern about how pricing behavior may be affecting inflation rates and pose questions about whether current economic models fully capture these dynamics.
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