The Canadian economy may have to find a way to adapt permanently to higher oil and gas prices, even as the price of other goods begins to fall, according to a former Bank of Canada governor.
In an interview Wednesday with CBC News Network’s Power & Politics Stephen Poloz, who was governor of the Bank of Canada from 2013 to 2020, said Canada’s inflation rate may fall back to the official target of two per cent in a year or two, but he struck a less optimistic note when it came to the higher costs. . of fuel.
“We may have to pay more for oil and gas forever,” Poloz told host Vassy Kapelos. “And if that’s the case, it’s not inflation. It’s a higher price that we have to pay, and we want to adapt to the higher price somehow in our economy.”
Earlier in the day, Statistics Canada reported it Canada’s inflation rate reached a nearly 40-year high at 7.7 per cent.
While the average price of food has risen 9.7 per cent over the past year, the higher cost of gas – an increase of 48 per cent compared to a year ago – is the single biggest factor influencing the inflation rate.
WATCH | Call for firing Bank of Canada governor is ‘pure politics’: Stephen Poloz
Poloz said the key issue Canada’s central banks will examine in trying to control inflation is how high fuel prices end up affecting other parts of the economy.
“It’s the part that is subject to control, and that’s the part that central banks will respond to, not the energy costs themselves,” he said.
The bank has raised interest rates several times this year with reference to inflation. The benchmark interest rate is currently 1.5 per cent.
The US Federal Reserve recently raised its benchmark rate by 75 basis points to 1.75 percent, the largest single increase in decades.
Poloz said he expects inflation to start ticking down in the second half of the year, in part due to the Bank of Canada’s tightening.
“I think people will be reassured by that,” he said.
Poloz defends central bank against criticism
But Poloz defended the bank’s monetary policy, saying it was difficult to predict the effects of the Delta and Omicron variant waves on the economy.
“We were pretty resilient to them. So of course, if you had known how things would turn out, I think you could have done it differently,” Poloz said.
“But the fact is, of course, we did not know what it would be like. So it was right to be careful all the way through.”
Poloz said the cautious approach to raising interest rates was necessary to protect himself against what he says was a bigger threat than inflation – deflation or a fall in prices. He said a lack of protection against deflation would have “run the risk of creating the second major depression.”
“We should all be pretty happy that it was averted.” Poloz added.
Conservative leadership candidate Pierre Poilievre has been particularly critical of the Bank of Canada’s monetary policy, accusing it of “printing money” and pushing up rising prices. Poilievre has said that if he becomes prime minister, he will fire the current governor of the Bank of Canada, Tiff Macklem.
Poloz called the proposal “pure politics” and “unfortunate”.
Nor did he accept criticism of the institution he once headed.
“It is unfortunate that politics at all infects the monetary policy process. Central banks are designed to be separate from politics and for very good reasons,” Poloz said.
He said central banks are traditionally independent because of the threat of political pressure to loosen interest rates and potentially cause inflation as a result – but now political pressure is coming from the other direction.
But Poloz said there is a silver line to criticism of the bank.
“I’m glad the public perception right now is that inflation is a bad thing and we should fight it,” he said.
Higher interest rates would cause ‘pain’: NDP leader
NDP leader Jagmeet Singh said the higher borrowing costs that come with rising interest rates will hurt many Canadians.
“Rising interest rates will make the immediate, short-term pain even harder. Mortgage repayments will rise, car payments will rise,” he said. Power & Politics Wednesday.
“And that’s why we’re saying that the traditional response to inflation has always been to raise interest rates, and that will certainly reduce demand, but it will increase the pain, so we’ve said it can not be the only answer. “
Singh also said he would like to see the federal government impose corporate tax levies that can be redistributed to the people and a doubling of the GST / HST tax deduction.
WATCH NDP calls for a doubling of GST / HST tax deductions
Singh, whose party supports the Liberal government in the House of Commons through a supply and trust agreement, he said, talking to Prime Minister Justin Trudeau in a phone call yesterday about financial aid measures.
Singh told host Vassy Kapelos that the Liberal government may not be able to count on his party’s support in parliament if nothing is done to counter the rising cost of living.
“Our support for helping pass bills is not something they can take for granted if they do not provide the help that Canadians need,” Singh said.
Liberal MP and parliamentary secretary to the Minister of National Revenue Peter Fragiskatos said a gas tax holiday, a policy recently proposed by US President Joe Bidenis not off the table.
“It is not to be ruled out. The question is whether it will have a meaning, it will have a meaningful impact, a direct impact in the way that some, including conservative politicians, say it will,” he said.
“It is not clear that it would. It is such an unstable environment right now,” he said, referring to the war in Ukraine.
WATCH | MPs are debating tools to tackle the rising cost of living
If Biden’s “tax holiday” proposal succeeds, Canada would be the only G7 not to bring in a tax cut or subsidy in response to fuel prices.
Dan Albas, the conservative financial critic, said the easing of the pumps would have positive effects on the rest of the economy.
“Let’s also remind ourselves that petrol is an important driver of inflation, whether it’s in the grocery store or what, so you have to bear the cost of transportation. [down]said Albas.