In this setting, monetary policy needs to be even more forward looking than usual, seeing beyond the shutdown to its potential implications for the subsequent recovery. The loss of household wealth coupled with self-reinforcing weakness in business and consumer confidence could continue to weigh on aggregate demand after the restrictions are lifted. Some businesses will fail, and workers will not regain their old jobs.
Supply chains, both in Canada and globally, may be disrupted for some time. While the steps we have taken should help, we are likely to emerge from the shutdown with both demand and supply weaker than before. The scarring associated with the shutdown could lower productivity, which tends to result in higher inflation.