BOC Lane: Productivity growth will be stronger than expected

Comments from BOC Deputy Gov. Lane

• Productivity growth will be stronger than expected.
• Increased productivity growth gives economy more room to grow before inflation becomes a worry
• Accelerated digital transformation has supported resilience so much that damage to economic potential will be less than feared.
• Inflation over the next few months likely to be higher than projected in April MPR, mostly due to base year effect, strong commodities
• Inflation expected to fade later in the year as economic slack exerts downward pressure.
• Risks to inflation outlook identified in April remain relevant: those include stronger C$ hitting exports, potential for more persistent cost pressures to push up inflation
• Given unusually high uncertainty around potential and future growth, we need to rely on wider range of data than usual to assess how much slack exists in the economy
• That assessment is key to deciding when to start scaling back monetary policy stimulus
• Recent economic data show signs of increasing resilience that bodes well for underlying recovery
• Economic setback from the third wave of Covid 19 should be temporary
• BOC still expectsQ2 annualized growth to be close to the 3.5% predicted in April
• Signs of moderation in housing market have appeared in recent weeks, but level of activity remains a very high