Former Bank of Canada governor Stephen Poloz says inflation is likely to cool faster, opening the door for lower interest rates. Read more.
“We have all the ingredients of a disinflation that’s pretty orderly,” Poloz said., Poloz is optimistic that productivity gains will act as a “wedge” between inflation and wage demands in coming years. If companies can produce more per hour of work, higher salaries for their workers don’t create the same price pressures, he argued.
Despite his more sanguine view of inflation, Poloz said he understands central bankers’ recent moves to tighten policy as a prudent way to finish the job and get price pressures all the way back to the two per cent target. He made the comments ahead of the release of data that showed the inflation rate accelerated to 3.3 per cent in July.Article content
“The last thing I want to do is make a mistake and allow inflation to get stuck here, and that’s completely understandable,” the former governor said. “When you look out and it’s all foggy, when in doubt, keep your hand on the wall. That’s kind of your anchor point.”Poloz nonetheless warned that the economy can look strong and still also have lower inflation if harder to measure supply disturbances are resolving in the background.
The Bank of Canada doesn’t see inflation returning to two per cent until the second half of 2025, a timeline that was pushed back by six months at the July meeting. Most economists in a Bloomberg survey see the policy rate peaking at fiver per cent before heading lower in the middle of 2024. Swaps traders aren’t so sure, and have all but fully priced another 25 basis points of tightening before the end of the year.
Poloz released a book titled The Next Age of Uncertainty last year, examining the economic forces that will shape the decades ahead, but he’s still wary of being too declarative in his outlook.
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