Former BoC Governor Stephen Poloz warns against inflation being rooted in expectations - Canada News

Former BoC Governor Stephen Poloz warns against inflation being rooted in expectations – Canada News

BANFF, Alta. — Preventing current high inflation from feeding into public expectations is key to keeping the country out of recession, former Bank of Canada Governor Stephen Poloz said Thursday.

Poloz, who headed the bank for seven years until his term expires in June 2020, made the comments during an interview in Banff, Alta., where he was a speaker at the Global Business Forum, an annual conference that attracts executives and managers. business leaders from around the world.

Poloz said he believes the current cycle of high inflation is transitory, pointing to the latest monthly data from Statistics Canada showing that inflation is already starting to ease — despite the fact, Poloz said, that interest rate hikes already in place by central bankers have barely had time to have an effect.

“That means (inflation) will more or less disappear by itself over time. But if it takes one year to go up, it has to take a whole year to level off and another whole year to go down,” Poloz said.

He said it was possible that inflation could return to the Bank of Canada’s target rate of two per cent without a severe or even mild recession. He emphasized that Canada’s economy is in a strong position with a strong labor market, high levels of household income and savings, and encouraging levels of corporate investment.

However, he also said there is no guarantee of a soft landing. A major geopolitical event that causes the price of oil to rise dramatically, for example, could by itself cause a recession regardless of interest rates or any other factor.

Poloz said one of the biggest risks is actually public expectations. If people become convinced that high inflation will persist, he said, that could lead to higher wage levels that are difficult to reverse.

Spiraling wages could in turn push inflation even higher, forcing the need for a more difficult economic downturn to bring the cost of living under control.

“The risk is that (inflation) infects our economy, settles down and stays there to some extent,” Poloz said. “Of course it would never be close to 100 percent, but it could make sense.”

Poloz said the fact that most Canadians no longer remember this country’s last period of high inflation, which occurred in the late 1970s and early 1980s, is positive in that they are more likely to view the current cycle as a short-term event. .

Poloz’s upbeat tone on Tuesday was in stark contrast to the message just one day earlier from US Federal Reserve Chairman Jerome Powell.

At a press conference after the Fed announced a substantial rate hike of three-quarters of a percentage point, Powell acknowledged what many economists have been saying for months: that the Fed’s goal of creating a “soft landing” — in which it could slow growth enough to contain inflation, but not enough to cause a recession – looking increasingly unlikely.

“Nobody knows if this process will lead to a recession, and if so, how significant that recession would be,” Powell said, adding that Fed policymakers would need to see continued slow growth before they would consider stopping rate hikes. a “modest” rise in unemployment and “clear evidence” that inflation is moving back toward its 2 percent target.

“We have to get inflation behind us,” Powell said. “I wish there was a painless way to do this. It’s not.”

Earlier this month, the Bank of Canada raised its own key interest rate by three-quarters of a percentage point, signaling it would not be the last hike as it continues to battle high inflation.

Poloz said Thursday in Banff that no one really knows what will happen as central bankers around the world look to turn the overheated economy down.

“It’s like landing a plane in fog,” Poloz said. “You won’t know until you feel the wheels touch and hope it’s soft.”

#BoC #Governor #Stephen #Poloz #warns #inflation #rooted #expectations #Canada #News

Leave a Comment

Your email address will not be published.