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Warnings about the drawbacks of rising prices in Canada from the mouth of the Deputy Governor of the Central Bank.

Warnings about the drawbacks of rising prices in Canada from the mouth of the Deputy Governor of the Central Bank.

By Ahmad Alsaleh

Published: October 4, 2023

Mr. Nicolas Vincent, the non-executive deputy governor of the Bank of Canada, warned about the continuing rise in prices in Canada and its negative impact on the economic inflation in the country, which is rising more than expected.

This was stated during a series of remarks and comments made by Vincent on Tuesday at his first speech before the Chamber of Commerce in Metropolitan Montreal, in his capacity as the newly created non-executive deputy governor.

Price hikes in Canada are greater than expected!!
Mr. Vincent spoke about how some companies are still raising prices despite the removal of the justifications for this increase, emphasizing that the significant gap between current prices and prices before the pandemic contributes to higher economic inflation in Canada than the expected levels.

He also stated: "The increase in prices has been greater than usual, and more frequent, than it was before the pandemic, and we believe that this behavior from companies—whether here or abroad—is closely related to the high inflation that has exceeded expectations."

This is despite the annual inflation rate dropping to 2.8% last June, but it rebounded again to 4% last August, while the central bank's expectations were to reach only 2%.

Blaming corporate profits
Mr. Vincent confirmed that the repeated price increases could have negative repercussions for companies and might alienate customers, yet at the same time he warned that strong demand for goods, along with rising costs, returns a significant profit margin for companies, placing the blame on those companies that are willing to continue increasing prices consistently, an expense that customers bear entirely.

In this context, Vincent indicated that it is expected that companies will make larger adjustments to prices in these volatile economic conditions, noting his dissatisfaction with the pricing behavior of companies, although it has become closer to normal since the beginning of the year, but the deputy governor believes that this progress is still slow.

The central bank discusses its reassessment of inflation rates
On the other hand, Mr. Nicolas Vincent stated that "we should not underestimate the impact of pricing behavior on inflation, thus we are compelled to reassess our assumptions regarding inflation rates until the end of this year."

He also confirmed that the new assumptions being studied by the central bank will focus on reconsidering current economic models, as well as the presumed relationship between inflation and its drivers.

Reiterating that the updated inflation expectations are linked to abnormal corporate pricing, he also raised concerns about the continued rise in prices in Canada by companies even when many factors that led to this increase have disappeared.

Important warnings mentioned by Vincent
The deputy governor of the Bank of Canada warned of some risks related to inflation, especially rising labor and financing costs, which may increase due to rising prices and the continuation of unusual pricing behavior.

He also warned against the risk of the rising prices in Canada turning into a self-sustaining behavior, not linked to logical reasons for price increases, which later creates a cycle of unexpected feedback from customers, something Vincent referred to as "the biggest risk of all."

These remarks came as a form of examining the causes of rising prices in Canada and the continued increase in inflation rates since the onset of the coronavirus pandemic several years ago, and despite the ending of the pandemic's health repercussions, its economic impacts are still evident in the market.

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