more than 3 million people found themselves working less than half of their normal hours. businesses closed shop in record numbers. inflation fell sharply, even dropping into negative numbers. we were staring down another great depression and the possibility of deflation. deflation happens when prices across the economy actually fall. while this might not sound bad, the truth is that persistent deflation is dangerous. when unemployment rises rapidly and overall prices begin to fall, households may reduce spending if they think that goods and services will become even cheaper in the future. but putting off spending results in less demand, leading to more job losses and more business closures. and this puts more downward pressure not only on prices but also on wages. both can spiral downward, as they did in canada during the great depression. deflation also makes repaying debt more expensive — which could have been a severe problem for a country like canada, with high levels of household debt. 1 / 3 bis central bankers'speeches so when the pandemic began and we were facing economic calamity, we took extraordinary actions. we lowered our policy interest rate as low as we could. we promised not to raise interest rates until slack in the economy was fully absorbed, and we reinforced this commitment using quantitative easing. taken together, these actions kept borrowing rates low to stimulate spending and instilled much - needed confidence in the economy so that businesses and households could recover. thanks to the resilience of canadians, effective vaccines, exceptional fiscal policy and the bank ’ s actions, canada avoided deflation and our economy has recovered. canadians are anxious but i recognize that this reassurance may not reflect how many are feeling. even before the pandemic, many canadians were worried about how they were faring economically. not everyone was experiencing the benefits of a growing economy and a healthy labour market. the pandemic intensified people ’ s concerns, layering worries about their health and that of their loved ones on top of uncertainty about jobs and businesses, the value of their savings and their prospects for retirement. reopening the economy has brought new complications, leading to higher inflation around the world and here at home. the covid - 19 virus continues to circulate and mutate. we are seeing social upheaval here in canada and in other countries. and in the last week, shocking developments have unfolded in ukraine at great human cost. the unprovoked russian invasion is also creating volatility and uncertainty in the global economy. we

are living in anxious times. needless to say, monetary policy is not equipped to address most of these issues. but it is equipped and mandated to control inflation. here in canada, inflation is just above 5 %. that ’ s too high. and with oil prices rising further in recent weeks, we can expect inflation to move up again. i am sure people are wondering why prices are so high, so let ’ s unpack it. the inflation story in canada has three key elements. the first is that, through the pandemic many people shifted to buying more goods and fewer services. at the same time, the pandemic disrupted the production and delivery of many items. this has caused the prices of many globally traded goods to rise sharply. the second is that price increases have seeped into an increasingly wide array of goods, including everyday items like food and energy. oil prices are higher because of strong demand, limited investment in new production and geopolitical tensions. this means higher transportation costs, which further add to the price pressures on goods. food prices are also being affected by extreme weather that has reduced harvests. and strong demand for housing, in the face of limited supply, has pushed those prices up. the third is the strength of the recovery in canada and the overall balance between demand and supply in our economy. the inflation we are experiencing today is not because of overall excess demand in the economy. a wide range of indicators suggest that slack in the economy has just now been absorbed. but as we look ahead, spending growth needs to moderate so that demand does not significantly outpace supply and create a new domestic source of inflation. so we need to tighten monetary policy — or, to put it more simply, raise interest rates — to help control inflation. where do we go from here? 2 / 3 bis central bankers'speeches let me wrap up by explaining what canadians can expect from us going forward. monetary policy has a clear role in keeping supply and demand in balance and getting inflation back to target. to this end, we have taken deliberate steps to adjust the degree of monetary policy stimulus as the economy recovered — slowing our quantitative easing and then stopping it outright last october. and we made it clear to canadians in january that, with the economy operating at capacity, our guarantee of rock - bottom rates had ended. we need higher interest rates to bring inflation sustainably back down and keep the economy in balance. yesterday, governing council took the decision to raise the policy interest