BoC: Supply shocks can force tighter policy in a weak economy
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Deputy Governor Sharon Kozicki said supply-side disruptions can produce an awkward mix for monetary policy: softer growth alongside inflation that sits above target, a combination that can at times require tighter policy even when the economy is slowing.
In remarks published Monday, Kozicki pointed to structural forces that can make supply shocks more frequent or persistent, including a reshaping of global trade and more protectionist policy currents, as well as rapid advances and adoption of artificial intelligence. She also cited broader pressures such as geopolitical tensions, population aging, and more frequent extreme weather that can push up production costs and keep price pressures elevated.
Her key distinction was persistence. If a shock is small or short-lived, policymakers can often look through it while tracking the path back to target. But if the inflation impact appears larger or longer-lasting, the Bank may need a more restrictive stance to return inflation to target, even if that further weighs on activity.
The Bank held its policy rate at 2.25% on January 28, 2026, and its next scheduled rate decision is March 18, 2026.
