Bank of Canada governor warns geopolitical trends could make inflation fight harder

VANCOUVER — Bank of Canada Governor Tiff Macklem says the bank was surprised this year how the combination of large supply chain shocks and an overheated economy would play out on inflation.

He says Russia’s invasion of Ukraine was also a surprise, which led to higher energy prices and helped turbocharge already rising inflation.

Macklem says the unexpected geopolitical action points to the longer-term challenge of keeping inflation low as protectionism increases, and the deflationary benefits of global economies opening up fade.

He says the bank has learned lessons from the year, including that restoring supply is harder than restoring demand, that averages can obscure inflationary pressure and that supply disruptions are more inflationary when the economy is overheated.