Bank of Canada | We must keep inflation at 2%, says Deputy Governor Rhys Mendes

(Ottawa) Bank of Canada Deputy Governor Rhys Mendes says it may seem tempting to initiate a period of falling prices, but that would ultimately be more painful for many Canadians.

Mr. Mendes made the remarks in a speech Tuesday in Charlottetown on the importance of keeping inflation at the 2% target.

His speech comes as the Bank of Canada declares victory over high inflation, but Canadians remain dissatisfied with rising prices across the economy.

To bring prices down, the deputy governor points out that the central bank would have to put more pressure on the economy with high interest rates, an avenue that would likely make most people worse off.

He says a period of falling prices would also affect people’s inflation expectations, making it harder for the central bank to boost spending in an economic downturn.

Mr Mendes also warned that a period of low prices could trigger a deflationary cycle from which it would be difficult to escape.