BOC's Poloz: Inflation risks to rise with full output and employment

Delivering his remarks at a speech to financial analysts and the Montreal Council on Foreign Relations, Bank of Canada Governor Stephen Poloz said that the closer Canada gets to full output and employment the greater the risk that inflation pressures would appear, as per Reuters reports.

Key quotes

Will be cautious in making future rate changes, economy likely to require less monetary stimulus over time.

Perception that inflation has become inexplicable "has been greatly exaggerated"; bank has "solid" understanding of inflation process.

Canada's inflation has stayed in lower half of target range, even as output gap has been closing rapidly.

One-off factors account for about two-thirds of the shortfall in total inflation in canada in 2017.

Underlying inflation trend well within target range; total, core inflation have firmed in past couple months.

Fundamental drivers and some special factors can explain recent behavior of inflation reasonably well.

There is still a link between labor market slack and wages; over time, expected to lead to pickup in wage growth.

Not realistic to expect bank's policy instrument to control inflation down to tenths of a percentage point.

Common sense says digital economy affecting prices; so far, cumulative impact not large enough to challenge understanding of inflation.

Key notes

USD/CAD edges higher toward 1.28 as WTI eases to $57.

After testing the 1.27 handle on Monday, the USD/CAD pair reversed course on Tuesday and is now approaching the 1.28 handle as the loonie weakens amid falling crude oil prices. As of writing, the pair was trading at 1.2777, adding 0.57% on the day.