As Canadians continue to feel the pressure of rising cost of living, Bank of Canada Governor Tiff Macklem says Canada’s inflation rate will remain “painfully high” for the rest of the year. year.
On Wednesday, Statistics Canada reported that the country’s annual inflation rate rose to 8.1% in June from 7.7% in May, marking the largest annual change since January 1983. .
In an exclusive interview with Evan Solomon of CTV News, Macklem said the inflation rate “unfortunately … will probably start with a set for the rest of the year.”
“It’s going to be painfully high,” Macklem said Wednesday.
The increase in the inflation rate last month was mainly attributed to the rise in gasoline prices. In the interview, Macklem said gas prices have fallen since then and therefore expects that within a month, when the national statistics agency publishes its July inflation data, the rate “will probably go down a bit.”
However, Macklem said demand is ahead of the economy’s ability to produce the goods people want, which will continue to create inflationary pressures.
In response to higher-than-expected inflation, on July 13 the Bank of Canada raised its one-day interest rate by 100 basis points to 2.5 per cent. It was the central bank’s largest rate hike since August 1998.
The Bank of Canada’s next rate decision is set for September 7, following StatCan’s scheduled release on August 16 of its July inflation report.
In the interview, Macklem said that while returning inflation to the two percent target is paramount, he expects the policy rate to rise again “very quickly.”
“We are deliberately advancing our interest rate response. We want to move forward,” he said.
In the interview, Macklem also talked about what is driving the current economic situation and whether he believes there is a recession on the horizon.
“We are deliberately advancing our interest rate response. We want to move forward,” he said. “Inflation will go down.”
In the interview, Macklem said that while he doesn’t believe there is a recession on the horizon, Canada’s path to a “soft” economic landing is “narrowing”.
“Looking back, if we knew last year everything we knew today, yes, I think we would probably have started raising interest rates sooner,” Macklem said when asked if he believes the Bank of Canada’s credibility s ‘has been harmed by its management. of inflation.
Below is a full transcript of the interview with Evan Solomon, PowerV presenter for CTV News Channel and the CTV question period. The transcript has been edited for clarity.
Evan Solomon: Inflation hit a 39-year high, 8.1%, is that the maximum, and if not, to what extent will you raise rates to combat it?
Tiff Macklem: “Look Evan, there’s no way to avoid it: 8.1 percent inflation is painfully high. Hopefully, we know gas prices went down in July, so here’s a but when StatCan releases July inflation. [data] it will probably go down a bit. But look, unfortunately, inflation is likely to start with a set for the rest of the year. It will be painfully high.
“The simple reality is that the demand for the economy is ahead of the economy’s ability to produce the goods that people want, and that’s creating inflationary pressures. You asked where the rates should go.” Look, last week we took a big step, we increased our political interest rate by 100 basis points.This led us to what we call the long-term neutral range … We are deliberately advancing our response of interest rate.We want to move forward.The best opportunity to get it.smooth recovery is to load the policy response.
“This argues to raise the interest rate again, probably something around that range from 2 to 3 percent, or a little more and do it pretty quickly. Where should the endeavors finally go? “Well, that will depend on the evolution of the economy and, above all, the evolution of inflation. It is essential to get inflation back to our 2 percent target.”
Evan Solomon: So you’re talking about three [per cent]or more than three [per cent] on the next major rate hike in September, so people have to be prepared for that. Why not, if you know it’s coming, why didn’t you raise rates faster now, in order to curb inflation right now and stop the pain sooner?
Tiff Macklem: “Well, we took a very big step last week. We raised our interest rate by 100 basis points. We haven’t done it in a long time. And we’ve risen very quickly, we’re at the forefront. this answer.Exactly as you said, we want to move forward.
“We need to moderate demand, give supply time to catch up and get some steam out of inflation. And with front-loading, that gives us the best chances of a soft landing. Our goal is control inflation with a soft landing.We make our decisions based on the best information available on each of the future decision dates.
“We are very focused on returning inflation to 2 percent.”
Evan Solomon: I know you’re saying you’re moving forward. Some worry because we are behind it. Governor, is Canada heading for a recession?
Tiff Macklem: “We’re not projecting a recession. We’re projecting that growth will slow materially, quite a bit. We’re forecasting 3.5% growth for this year, 1.75% for next year. That’s quite marked.People will feel it, there will be a little pain … What we are trying to do is that the economy is in excess of demand, it is overheated.We need to get rid of the excess.We need to cool it so don’t overheat.We don’t want to cool it too much, and there are some good reasons why we think this is possible.
“Right now, there are over a million job vacancies, unfilled jobs in this country. There is a lot of room to reduce these vacancies, moderate demand, reduce these vacancies without materially reducing employment or increasing materially unemployment.
“So we think there’s a path to a soft landing, but I’ll be very frank, that path is shrinking. With inflation at 8.1 percent, with inflation expanding, with inflation persisting, this path is narrowing and this is really coming back. why have we made our decision “.
Evan Solomon: What is your message to Canadians who are afraid and see no relief in sight?
Tiff Macklem: “My message to Canadians is really double Evan. First, inflation has risen very quickly, until March last year it was 2.2 per cent. It has gone up very quickly. It will not stay .so high.Inflation will go down.Canadians can be sure that inflation will go down.The other thing I want to say is, but look, we understand that it’s a bit counterintuitive.We are raising interest rates, this is raising the cost of borrowing while Canadians pay more for gasoline, more for groceries, more for many everyday items.
“But it is by increasing the cost of lending that we will actually curb spending, slow demand, give the economy a chance to catch up and take some of the inflation out of it. So I understand that there is a little short-term pain here, but it’s worth the price changes back to normal.
“Canadians need to regain some predictability. They shouldn’t have to worry, you know, what the cost of living will be next month, next year. We’re determined to get inflation back to our goal.”
Evan Solomon: Have you been the target of a lot of criticism for the inflation crisis, have you made a mistake in not raising rates before, a mistake that is costing the bank credibility?
Tiff Macklem: “The Canadian economy has gone through a lot in the last two years. We’ve had the deepest recession, the fastest recovery. Now there’s a brutal war in Europe: Russia’s attack on Ukraine. All our decisions through this period have been based on the best information available at the time we made the decision.
“Look, you know, looking back, if we knew last year everything we knew today, yeah, I think we probably would have started raising interest rates before. But we didn’t. I mean last summer. , unemployment was 7.5 percent.There was still a lot of shortage in the economy, we were still facing waves of viruses, stopped.
“You’ll remember that in January, Omicron hit us hard, there was a new wave of closures. But you know, we ended our QE last October, the quantitative easing, we pointed out in January that Canadians should expect higher interest rates, we started to rise.in March, we have increased 2.25 percentage points since then.
“We are doing this to move forward. The excess demand we are seeing, the overheating of the economy, is relatively recent. And moving forward strongly, we are doing two things: we will be able, as I said before, to align demand with the supply and the other is to keep inflation expectations firmly anchored in the target.
“Our credibility is being tested, and that was an important reason why we took an unusually big step last week to send a clear message to Canadians that they can be sure we will control inflation.”
Evan Solomon: It’s fair to say to today’s consumers, “Friends, it’s bad, but have you reached maximum inflation now?” Is this the peak of inflation?
Tiff Macklem: “Look, like I said before Evan, we expect it to go down when we have the July issue in a month. When you filled up your gas tank in June you probably paid a little over $ 2 a liter., in July it looks more like $ 1.80 something, so just that is likely to reduce inflation a bit in July.But inflation will stay painful for a few months.Monetary policy works, however, it will take a while. it’s time to work with the economy, but it works, and especially as we move into next year, Canadians will see …