Higher Oil and Gas Prices May Be Permanent: Former Bank of Canada Governor

The Canadian economy may need to find a way to permanently adjust to higher oil and gas prices, even as the cost of other goods begins to fall, according to a former Bank of Canada governor.

In an interview Wednesday with CBC News Network’s power and politics Stephen Poloz, who was governor of the Bank of Canada from 2013 to 2020, said Canada’s inflation rate could drop back to the official 2 percent target in a year or two, but he was less optimistic about the higher cost. made out of fuel.

“We may have to pay more for oil and gas forever,” Poloz told host Vassy Kapelos. “And if that’s the case, that’s not inflation. It’s a higher price that we’re going to have to pay and we’re going to adjust to that higher price somehow in our economy.”

Earlier in the day, Statistics Canada reported that Canada’s inflation rate hit a nearly 40-year high 7.7 percent.

While the average cost of food has risen 9.7 percent over the past year, it is the higher cost of gasoline, up 48 percent from a year ago, that is the biggest single factor affecting the rate of inflation. .

CLOCK | Calling to fire Bank of Canada governor is ‘pure politics’: Stephen Poloz

Calling to fire Bank of Canada governor is ‘pure politics’: Stephen Poloz

Former Bank of Canada Governor Stephen Poloz joined Power & Politics on Wednesday to discuss the rising cost of living and Conservative leader Pierre Poilievre’s call to fire current Bank Governor Tiff Macklem.

Poloz said the key question Canada’s central bankers will examine as they try to rein in inflation is how high fuel prices end up affecting other parts of the economy.

“That is the part that is subject to control, and that is 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, citing inflation. The reference interest rate is currently 1.5 percent.

The US Federal Reserve recently raised its benchmark interest rate 75 basis points to 1.75 percent, its biggest increase in decades.

Poloz said he expects the rate of inflation to start to ease in the second half of the year, in part due to tightening by the Bank of Canada.

“I think people will calm down,” he said.

Poloz defends central bank from criticism

Some politicians Y 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 effects of the Delta and Omicron variant waves on the economy.

“We were pretty resistant to that. So of course, if I had known how things would turn out, I think I could have done it differently,” Poloz said.

“But of course the fact is we didn’t know how it would turn out. So it was right to be cautious through all of this.”

Poloz said the cautious approach to raising interest rates was necessary to guard against what he said was a greater threat than inflation: deflation or falling prices. He said the lack of deflation protection would have “risked creating the second Great Depression”.

“We should all be very glad that this has been avoided.” 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 driving up prices. Poilievre has said that if he becomes prime minister, he will fire current Bank of Canada Governor Tiff Macklem.

Conservative leadership candidate Pierre Poilievre MP has vowed to sack Bank of Canada Governor Tiff Macklem if he becomes prime minister, a proposal Macklem’s predecessor Stephen Poloz calls “unfortunate”. (Justin Tang/Canadian Press)

Poloz called the proposal “pure politics” and “regrettable.”

Nor did he appreciate the criticism of the institution he once led.

“It is unfortunate that politics infects the monetary policy process. Central banks are designed to be separate from politics and for very good reason,” Poloz said.

He said that traditionally, central banks are independent because of the threat of political pressure to relax interest rates and potentially cause inflation as a result, but now the political pressures come from the other direction.

But Poloz said there is a silver lining to criticism of the bank.

“I’m pleased that right now, the public perception is that inflation is a bad thing and we need to 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 more difficult. Mortgage payments will go up, car payments will go up,” he said. power and politics Wednesday.

“And that’s why we’ve been saying that the traditional response to inflation has always been to raise interest rates, and it will certainly decrease demand, but it will increase pain, which is why we’ve said that that can’t be the only answer.” .

Singh also said he would like to see the federal government impose corporate tax levies that can be redistributed to individuals and to double the GST/HST tax credit.

MIRA NDP asks to double the GST/HST tax credit

NDP asks to double the GST/HST tax credit

“Given the intensity of inflation… we need to help people now.” NDP leader Jagmeet Singh said he spoke to Prime Minister Justin Trudeau on Monday about the cost of living crisis.

sing, whose party is propping up the liberal government in the House of Commons through a trust and supply deal, said he spoke to Prime Minister Justin Trudeau in a phone call this week about financial relief measures.

Singh told presenter Vassy Kapelos that the Liberal government may not be able to command the support of his party in Parliament if nothing is done to tackle the rising cost of living.

“Our support to help pass bills is not something you can take for granted if you’re not going to provide the help Canadians need,” Singh said.

Liberal MP and Parliamentary Secretary to the Minister of National Revenue Peter Fragiskatos said an exemption from the gasoline tax, a policy that US President Joe Biden recently proposedit’s not off the table.

“It cannot be ruled out. The question is will it have an impact, will it have a significant impact, a direct impact on the way that some, including conservative politicians, say it will,” he said.

“It’s not clear if it would. It’s such a volatile environment right now,” he said, citing the war in Ukraine.

CLOCK | MPs debate tools to tackle rising cost of living

MPs debate tools to tackle rising cost of living

Peter Fragiskatos, Parliamentary Secretary to the Minister for National Revenue, and Dan Albas, Conservative Finance Critic, joined Power & Politics on Wednesday to discuss the rising cost of living and what Ottawa can do to provide relief to Canadians.

If Biden’s ‘tax holiday’ proposal succeeds, Canada would be the only G7 not to introduce a tax cut or subsidy in response to fuel prices.

Dan Albas, the conservative financial critic, said the relief at the pumps would have positive effects on the rest of the economy.

“Let’s also remember that gasoline is a key driver of inflation, whether it’s at the grocery store or whatever, you need to have transportation costs [down]Albas said.

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