Bank of Canada Admits Underestimating Inflation Pressures and Slow Policy Response

• Bank of Canada underestimated inflationary risk from supply shocks and strong consumer demand during the pandemic

• Models failed to properly measure price pressures; bank was slow to respond with rate hikes

• Essay part of reflection by central bankers on what caused high inflation and slow policy response

• Supply shocks can't always be ignored; need better understanding of price pressures throughout economy

• Prolonged high inflation may have hurt public trust; opportunity to communicate more on policy decisions