Close X
Sunday, November 10, 2024
ADVT 
National

Fighting inflation half-heartedly would be ‘huge mistake,’ BoC's Macklem warns

Darpan News Desk The Canadian Press, 22 Nov, 2023 11:25 AM
  • Fighting inflation half-heartedly would be ‘huge mistake,’ BoC's Macklem warns

Bank of Canada Governor Tiff Macklem warns fighting inflation half-heartedly and living with its consequences would be a huge mistake.

The governor acknowledged during a speech Wednesday that interest rates may already be high enough to bring inflation back to target, but he doubled down on the central bank's readiness to raise rates further if inflation doesn't come down.

The governor delivered a speech to the Saint John Region Chamber of Commerce Wednesday, one day after the release of new inflation numbers showing Canada’s inflation rate fell to 3.1 per cent in October.

According to his prepared remarks, Macklem contrasts today’s inflation fight with inflation in the 1970s, highlighting similarities and differences between those two periods of time.

Macklem says inflation in the 1970s was also set off by global events, leading to similar consequences to today: people felt ripped off because their wages weren’t keeping up with the cost-of-living and labour strikes were long and frequent.

And while policymakers experimented with price and wage controls as well as slowing the growth of the money supply, the governor said these policies were ineffective.

“And the government and central bank weren’t willing to stay the course — to restrain government spending and tighten monetary policy enough to wring inflationary pressures out of the economy,” Macklem said.

The consequence, he said, was that Canadians lived with high inflation for more than a decade and by the time policymakers realized they needed to do more, inflation was already entrenched in the economy.

“The lesson from the 1970s is that fighting inflation half-heartedly and living with the stress, labour strife and uncertainty inflation can cause would be a huge mistake,” Macklem said.

The Bank of Canada responded to rising inflation starting in March 2022 by rapidly raising interest rates to the highest level in decades. The aggressive rate hikes have slowed spending in the economy as people face higher borrowing costs, particularly many homeowners with mortgages.

The central bank opted to hold its key interest rate steady at five per cent at its last two decision meetings as economic growth halts. It has said it is also taking into consideration that many Canadians will have to renew their mortgages at higher interest rates, meaning more economic pullback is on the way.

"This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability. But if high inflation persists, we are prepared to raise our policy rate further," Macklem said Wednesday.

The governor says Canada has two advantages today compared to the 1970s. The first is that people expect inflation to come back down in the long-run and secondly, the Bank of Canada responded forcefully this time with aggressive rate hikes.

“I know that even as our interest rate hikes are bringing inflation down, to many Canadians they feel like another added cost,” he said. “But these rates are relieving price pressures broadly throughout the economy. If we stay the course, the payoff will be worth it.”

Macklem’s speech also came the day after Finance Minister Chrystia Freeland presented the government's fall economic statement, which pledged new limits on government spending as the economy slows and inflation remains high.

The update adds $20.8 billion in new spending over five years since the spring budget, with some new measures designed to boost the housing supply, including rental units and affordable housing.

But much of the new spending is tied to policies and programs the federal government announced prior to today’s fall economic statement, including billions of dollars for electric-vehicle battery plants.

Before the fiscal update, Macklem had warned that on aggregate, the spending plans of all levels of government for the next year risk fuelling inflation.

MORE National ARTICLES

Darpan 10 with Alfred Hermida, Professor, UBC School of Journalism, Writing, and Media

Darpan 10 with Alfred Hermida, Professor, UBC School of Journalism, Writing, and Media
Alfred Hermida, Professor, UBC School of Journalism, Writing, and Media in Darpan 10 shares more about Bill C18 and the impact of Meta's deicision to block news consumption on Facebook and Instagram. 

Darpan 10 with Alfred Hermida, Professor, UBC School of Journalism, Writing, and Media

Masks to be worn in B.C. health facilities as flu and COVID cases increase

Masks to be worn in B.C. health facilities as flu and COVID cases increase
An upward trend in flu and COVID-19 cases in British Columbia has prompted a renewed requirement to wear masks in all health-care facilities.  Provincial health officer Dr. Bonnie Henry says the masks must be worn by all health-care workers, volunteers and visitors in patient-care areas starting Oct. 3. 

Masks to be worn in B.C. health facilities as flu and COVID cases increase

Delta mayor sounds alarm over 'rampant' crime at B.C. port, as expansion looms

Delta mayor sounds alarm over 'rampant' crime at B.C. port, as expansion looms
A new report about policing of Metro Vancouver port terminal facilities says there's "literally no downside" for organized criminals to set up shop, and one British Columbia city is sounding the alarm. Delta Mayor George Harvie says the city commissioned the report about the Vancouver Fraser Port Authority’s Roberts Bank Terminal amid "rampant" criminal activity due to a lack of funds for policing. 

Delta mayor sounds alarm over 'rampant' crime at B.C. port, as expansion looms

Student assaulted at UVIC

Student assaulted at UVIC
Saanich Police are investigating a sexual assault in a campus washroom at the University of Victoria. A safety bulletin issued by the university says the victim was assaulted in a men’s washroom on the first floor of a campus building on Tuesday morning.  

Student assaulted at UVIC

Homicide in Chinatown: VPD

Homicide in Chinatown: VPD
Sergeant Steve Addison says the unnamed victim was attacked (near Carrall Street and East Hastings Street) just after 5 a.m. The man was rushed to hospital but was pronounced dead.  

Homicide in Chinatown: VPD

CBSA major drug bust

CBSA major drug bust
Canada Border Services Agency says it seized nearly 200 kilograms of opium concealed in shipping containers arriving in B-C. A statement from the agency says a bust on August 15th at an examination facility in Burnaby turned up 150 kilograms of opium hidden in steel machinery.

CBSA major drug bust