Bank of Canada Official Says Stagflation Risks Have Dissipated

By Paul Vieira

OTTAWA-A Bank of Canada senior official dismissed on Thursday worries about the risk that the Canadian economy is about to get stuck in a prolonged period of stagnant growth and elevated inflation, otherwise known as stagflation.

"I think the primary risks around stagflation are behind us," said Deputy Governor Sharon Kozicki, in a question-and-answer session following an Ottawa speech.

Kozicki said elevated levels of interest rates have worked to slow inflation, which has climbed less than 3% for four straight months, while other gauges indicate core inflation is at a multiyear low. She said there is still room for further deceleration, toward the central bank's 2% target, "but we're out of those particularly concerning high levels" of inflation.

She acknowledged that economic growth has been soft. Gross domestic product rose 0.5% in the first quarter from the same year-ago period. Canada barely escaped two straight quarters of negative growth in the second half of 2023, and growth in the first quarter of 1.7% annualized was well below the central bank's forecast.

"As we look ahead, we're expecting more improvement on the growth front, " she said. The official Bank of Canada forecast, which is scheduled for an update next month, projected growth of 1.5% this year, followed by 2.2% expansion in 2025.

The central bank cut its main interest rate last week, by a quarter point to 4.75%, and Kozicki said it is "reasonable to expect" further rate reductions so long as inflation continues to slow toward 2%. The Bank of Canada's mandate is to set rates at a level to achieve and maintain 2% inflation. In April, inflation in Canada rose 2.7%.

Write to Paul Vieira at [e-mail]

(END) Dow Jones Newswires

06-13-24 1108ET