In a speech at the University of Waterloo on Tuesday, Baudry said a faster global withdrawal of fiscal and monetary stimulus during the recovery from the pandemic would likely result in lower inflation.
Beaudry said fiscal and monetary policy in one country has knock-on effects in other nations that are not always considered.
One of the lessons from the global financial crisis in 2008-2009, he said, was that countries would have benefited from a more gradual withdrawal of stimulus because of spillover effects.
That lesson, he said, influenced policy decisions during the pandemic.  However, Beaudry noted that the economic crisis of COVID-19 was different and public health measures meant that supply in many sectors could not keep up as demand began to recover.
“Congestion has occurred in these areas due to increases in demand due to a combination of stimulus, shutdown and reopening policies, as well as consumers moving away from services.”
The deputy governor said stimulus provided simultaneously by countries through government support programs and lower interest rates had ripple effects worldwide and contributed to supply chain bottlenecks.
“It’s possible that a somewhat faster global withdrawal process could have made all countries better off,” he said.
At the same time, Beaudry said the stimulus measures had contributed to a faster-than-expected economic recovery, with labor markets recovering six months earlier than they did after the global financial crisis.
“Fiscal policy measures clearly prevented a worse outcome.”
Moving forward, Beaudry said the Bank of Canada is focusing on communicating clearly with the public about its policy decisions to ensure Canadians don’t expect high inflation to continue for too long.
Central banks generally worry when people and businesses expect inflation to remain high, because those expectations can fuel even higher prices.
Beaudry also addressed concerns raised by some that the central bank would need to plan for a major economic slowdown, or even a recession, to reduce inflation.
Beaudry said the Bank of Canada believes people set their inflation expectations partly on past inflation and partly on communication from central banks about where monetary policy is headed.
Statistics Canada released its consumer price index report for August earlier Tuesday, which showed inflation slowing to 7.0%.  Beaudry said that while inflation is heading in the right direction, it is still “very high.”
The deputy governor said the bank was leaning toward effective communication with the public about monetary policy to help ease some of the heightened inflation concerns.
“The bank is committed to keeping its communications during this difficult period clear, simple and focused on our inflation mandate,” he said, adding that the more effective the bank is with its communications, the more likely it is to avoid recession.
The deputy governor concluded by reiterating the bank’s commitment to bring inflation back to its two percent target and thus fulfill its mandate.
“We will continue to take what is necessary to restore price stability for households and businesses.”
This report by The Canadian Press was first published on September 20, 2022.