The first step to make life more affordable for Canadians is to lower inflation, says the head of Canada’s central bank.
On Wednesday, Bank of Canada governor Tiff Macklem spoke to a Senate committee, which began a general study on banking, trade and the financial challenges facing Canadians, including inflation.
For the first time since 1991, inflation rose to 4.8 per cent in December.
The causes of high inflation, such as supply shortages, are temporary and will ease to three per cent by the end of this year, the bank says.
The Bank of Canada is responsible for keeping inflation close to two per cent, though ranges within one to three per cent are acceptable. It accomplishes this by raising interest rates to cool inflation, or by cutting rates to encourage spending and borrowing.
Inflation is forecast to lower to the targeted two per cent mark by 2023.
On Jan. 26, the bank held interest rates at 0.25 per cent, but warned that increases to fight inflation were coming.
The increases will partly be tied to how much Canadians spend and other economic developments, Macklem told the committee.
The bank is aware that rising prices for food, gasoline and other goods are impacting Canadians, he said.
“We are confident that inflation will come down. The inflation we’re seeing now reflects the very unique circumstances of this pandemic,” Macklem continued.
The bank’s next update is on March 2 and economists expect interest rates to begin rising in April.
The bank must raise interest rates to moderate the growth in demand to match supply levels, Macklem said.
The Statistics Canada’s report on gross domestic products by industry illustrates the growing demand for goods and services, he said.
Tuesday’s StatCan report found that in November, nearly all industries saw an increase from the month before, including: 2.8 per cent in wholesale trade; 1.4 per cent in manufacturing; 3.4 per cent in accommodation and food services; and 0.3 per cent in the public sector, the report found.
Economic growth will depend on the severity of Omicron, but the bank expects it to grow by four per cent by the end of 2022 and 3.5 per cent in 2023.
Canada’s central bank remains confident in its forecast because of indicators, including that the United States’ economy is showing strength, said Carolyn Rogers, Macklem’s senior deputy governor.
“As our biggest trading partner, (the U.S.) plays a big role in the growth that we see for the Canadian economy,” she said.
Challenges impacting businesses and the economy, such as restrictions, will also begin to ease as the pandemic lifts, Rogers said.