* * projected range from the bank of canada ’ s april 2020 monetary policy report statistics canada and bank of canada projections gdp last data plotted : 2022q4 these possible outcomes reflected two distinct dynamics. some economic activity and employment would return to normal levels as soon as the pandemic subsided and lockdowns were lifted — similar to what often happens following a natural disaster. other economic activity would take longer to come back. indeed, in the spring of 2020 economists around the world debated about whether the recovery would be v - shaped or l - shaped. the bank ’ s view was that each of these dynamics would likely play out in turn, resulting in a two - phased recovery : first reopening and then recuperation. why did we expect full recuperation to take longer? it was partly because of our experience with the global financial crisis of 2008 – 09. the long, drawn - out recovery that followed that crisis reflected a large and prolonged rise in unemployment and massive damage to balance sheets. as a result, the global economy took 10 years to recover to its pre - crisis trend. labour markets can be damaged by lengthy recessions. unemployment can have persistent effects on people ’ s skills and their ability to re - enter the workforce. because the pandemic began with such a huge increase in unemployment and so much uncertainty around how long the pandemic would last, this concern was front of mind. the unevenness of job losses caused by the pandemic also suggested that inequality could widen, which itself has negative economic consequences. in all, we saw powerful downdrafts on the economy in those early months — reflected in our expectation that it would take until 2023 for slack to be absorbed. the same view was evident in our projection for inflation at the time. we can see in chart 5 that our earlier projection showed inflation creeping up to our 2 % target over three years. chart 5 : consumer price index inflation, projected versus actual year - over - year percentage change, quarterly data, not seasonally adjusted % - 1 projected cpi inflation * actual cpi inflation * projected cpi inflation from the bank of canada ’ s july 2020 monetary policy report sources : statistics canada and bank of canada projections last data plotted : 2022q4 needless to say, this is not exactly how things turned out. the economy ’ s path of recovery has followed the upper edge of the range we had contemplated. employment recovered more quickly than expected. and inflation persistently ran much higher than

implied cpi path consistent with the 2 % inflation target last observation : december 2021 this surge in inflation has been more persistent than anticipated. part of it reflects a catch - up in prices after inflation dropped in 2020 ( chart 3, panel b ). it also reflects the impacts of both supply constraints and strong demand in global markets — especially for goods. we now expect that inflation will remain close to 5 % through the first half of this year. the initial policy response so now that we ’ ve talked about our journey over the last two years, let ’ s turn our attention to the policy response in those early days of the crisis. the sheer scale and complexity of this pandemic was beyond what anyone anticipated. how did the bank navigate its course? once the virus spread across the world and the first lockdowns were implemented, we clearly understood that the economic and financial impacts would be serious. just how serious was still quite uncertain. but we knew that the situation called for extremely aggressive policy responses, right from the start. our thinking was that it was better to do too much up front to strongly support the recovery than to play catch - up later. when the pandemic first hit, the top priority was to support canadian households and businesses. in addition to helping those most directly affected, our goal was to prevent second - round effects on other sectors of the economy — notably the impacts that can occur when those who have lost income cut back their spending. we were also worried about businesses delaying investments. a second problem we needed to tackle right away was the breakdown of financial markets. in an atmosphere of panic, asset values plummeted and we saw a generalized dash for cash. market liquidity suddenly evaporated — in other words, sellers had difficulty finding buyers, even for safe assets such as government bonds. this dynamic threatened to block the flow of credit for households and businesses just when they needed it most. the bank responded swiftly and aggressively to restore calm to financial markets. we provided liquidity to the financial system through several channels, including repurchase agreements and direct asset purchases in a range of financial markets. these actions, alongside similar measures taken by central banks in other countries, quickly restored market functioning worldwide. it was clear that the federal government ’ s fiscal policy would need to take primary responsibility for supporting households and businesses, because it could focus that support to manage the uneven impacts of the pandemic. many canadians who had the option of working remotely stayed employed. meanwhile, many