Politics is not responsible for inflation: Former Governor of the Bank of Canada – National

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With inflation becoming a regularly politicized topic as debates over the cost of breakfasts dominate, the former Governor of the Bank of Canada (BoC) says there can be no one on the political spectrum who deserves the job. blame.

Speaking to Abigail Bimman of Global News on the West Block regarding the upcoming budget update, Stephen Poloz, now special adviser to Osler and former BoC governor, said Canada’s ability to navigate the the pandemic with results which were not much more drastic economically is to be congratulated.

“Aren’t we lucky that the policies worked well to prevent the Second Great Depression, which worried many economists when we first encountered the COVID-19 shock,” Poloz said.

Read more: Liberals under pressure to balance budget and political demands in budget update

However, he added that even though Canada has embarked on a path of recovery amid deflation with debt that could potentially have caused depression, now is the time to continue focusing on growth.

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“People want reassurance that the budget plan is sustainable,” Poloz said. With the rising costs Canadians face, they will want to see a plan that eases tensions, he added.

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Finance Minister Chrystia Freeland’s budget update is expected to be similar to those released following the 2015 and 2019 elections, according to Reuters. The update is expected to address COVID-19 support for businesses and continue to chart the course of recovery during the pandemic.

“[A plan] which maybe starts on [economic] get back to a place where we know we have some leeway if another big shock hits, ”said Poloz.

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Read more: Bank of Canada maintains key rate, warns high inflation will persist until 2022

Poloz mentioned that with other Canadians he will seek to see where the debt plan deficit lies, whether there will be any new taxes that could hamper economic growth and what will happen to internal trade barriers between countries. provinces. He added that a temporary increase he would consider that would not slow growth, but rather support the Canadian economy, is a sales tax increase.

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What could slow growth, he said, is if there are more lockdowns due to additional complications with the COVID-19 pandemic as new variants emerge.

“My feeling is that economic growth, once we get past the bust and the recovery of the COVID shock, the trend rate of growth of the economy is actually going to be quite modest,” he said.

Inflation – a slow process

According to the BoC, inflation, as measured by the consumer price index, was above the Bank’s 2.0% target. The BoC said supply constraints affected the price of goods, with inflation in 2021 reaching 4.4%. The sharp rise in inflation in one year is unprecedented given pre-pandemic data, where over a 20-year period, it averaged just 1.4%.

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Poloz said inflation is often a slow process over several years, but the steep rise in costs indicates that it is likely due to “temporary factors.”

According to the Bank of Canada’s website, the sharp rise in inflation is due to “strong demand combined with supply disruptions” resulting in “higher costs for businesses and higher prices for consumers. “.

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On December 9, BoC Deputy Governor Toni Gravelle said in a speech that the central bank remains “committed to its commitment to keep inflation under control” in Canada.

While Canadians pay more at the grocery store now than a year ago, Poloz mentioned that any measure used to curb inflation needs to be well thought out because we don’t know the extent of what is going on.

Read more: Bank of Canada sees no clear end to supply chain problems

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“We are now in the area where beautiful judgments must take place,” he said. “We won’t really know what inflation is for about six or nine months.”

It’s time for the key rate hike

Since the start of the pandemic in March 2020, the BoC has kept the key interest rate at 0.25% and recently announced that it will maintain this price. However, they reported potential increases in 2022.

Poloz said that with the Canadian economy trending in the right direction and “mostly back to normal,” increasing the key benchmark rate is something that should be considered, but not right away.

“It’s time for everything to normalize – prices, interest rates, all of that stuff,” Poloz said. “You don’t have to have really, really low interest rates anymore.

Poloz added that published data regarding inflation and the continued economic recovery from COVID-19 should serve as a starting point to determine where the key benchmark rate will end.

© 2021 Global News, a division of Corus Entertainment Inc.

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