The Canadian economy may have to find a way to continually adjust to higher oil and gas prices even as the cost of other commodities starts to fall, the former Bank of Canada governor said.
In an interview with CBC News Network on Wednesday Power and politics Steven Poloz, who was governor of the Bank of Canada from 2013 to 2020, said Canada’s inflation rate could return to its official 2 percent target in a year or two, but he was less optimistic when it came to higher costs. fuel.
“We may have to pay more for oil and gas forever,” Poloz told host Vassi Kapelos. “And if that’s the case, then it’s not inflation. This is a higher price that we will have to pay, and we will somehow adjust to this higher price in our economy.”
Earlier in the day, Statistics Canada reported that Canada’s inflation rate hit a nearly 40-year high of 7.7%.
While the average cost of food has risen by 9.7% over the past year, the higher cost of gas – by 48% compared to last year – is the biggest factor influencing the rate of inflation.
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Poloz said a key issue that Canadian central banks will be looking at in an attempt to manage inflation is how high fuel prices end up affecting other parts of the economy.
“This is the part that is subject to control, and it will be the central banks that will react to it, and not the energy costs themselves,” he said.
The bank raised interest rates several times this year, citing inflation. The base interest rate is currently 1.5 percent.
The US Federal Reserve recently raised its benchmark interest rate by 75 basis points to 1.75%, the biggest increase in decades.
Poloz said he expects inflation to start declining in the second half of the year, partly due to tightening by the Bank of Canada.
“I think it will calm people down,” he said.
Poloz defends central bank from criticism
A little politicians and economists have criticized the Bank of Canada for waiting too long to raise interest rates as demand for goods and services recovered from COVID-19-related shutdowns.
But Poloz defended the bank’s monetary policy, saying it was difficult to predict the impact of the Delta and Omicron wave options on the economy.
“We were pretty resilient to them. So, of course, if you knew how things would turn out, I think you could do it differently,” said Poloz.
“But, of course, the fact is that we did not know how it would turn out. And so it was right to be careful.”
Poloz said a cautious approach to raising interest rates is needed to guard against what he says is a bigger threat than inflation – deflation or falling prices. He said that failure to guard against deflation “would risk creating a second Great Depression.”
“We should all be very happy that this was avoided.” Poloz added.
Conservative leadership candidate Pierre Poilivre was particularly critical of the Bank of Canada’s monetary policy, accusing it of “printing money” and fueling price increases. Poilivre said that if he became prime minister, he would fire the current governor of the Bank of Canada, Tiff Macklem.
Poloz called the proposal “pure politics” and “unsuccessful”.
He also did not welcome criticism of the institution he once led.
“Unfortunately, politics in general affects the process of monetary policy. Central banks are designed to be separate from politics, and for very good reasons,” Poloz said.
He said that traditionally central banks have been independent because of the threat of political pressure to ease interest rates and potentially cause inflation as a result, but now the political pressure is coming from the other side.
But Poloz said there is a silver lining to the criticism of the bank.
“I’m glad that public opinion now is that inflation is bad and we have to fight it,” he said.
Higher interest rates will cause ‘pain’: NDP leader
NDP leader Jagmeet Singh said the higher borrowing costs associated with rising interest rates would hurt many Canadians.
“Rising interest rates will make the immediate, short-term pain worse. Mortgage payments will go up, car payments will go up,” he said. Power and politics Wednesday.
“And that’s why we said that the traditional response to inflation has always been to raise interest rates, and that will certainly reduce demand, but increase the pain, which is why we said that can’t be the only answer.”
Singh also said he would like the federal government to introduce corporate tax levies that could be redistributed to individuals and double the GST/HST tax credit.
WATCH NDP calls for double GST/HST tax credit
Singh, whose party backs the Liberal government in the House of Commons through a supply and confidence agreement, said he spoke by phone with Prime Minister Justin Trudeau yesterday about bailout measures.
Singh told host Vassey Kapelos that the Liberal government may not be able to count on his party’s support in Parliament if nothing is done to address the rising cost of living.
“Our support for passing bills is not taken for granted if they are not going to provide the help that Canadians need,” Singh said.
Liberal MP and Parliamentary Secretary to the Treasury Secretary Peter Fragiskatos said the gas tax holiday recently proposed by US President Joe Biden is not being cancelled.
“This cannot be ruled out. The question is, will it have an impact, will it have a meaningful impact, a direct impact, as some say, including conservative politicians,” he said.
“It is not clear if it will. Now such an unstable situation,” he said, referring to the war in Ukraine.
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If Biden’s “tax holiday” proposal succeeds, Canada will be the only G7 not to cut taxes or subsidize fuel prices.
Dan Albas, a conservative financial critic, said making pumping stations easier would have a positive impact on the rest of the economy.
“Let’s also remind ourselves that gasoline is a key contributor to inflation, whether it’s at the grocery store or anywhere else, you need transportation costs. [down]Albas said.