OTTAWA – Bank of Canada Governor Tiff Macklem says inflation could last longer than expected.
âI think transient for economists somehow means not permanent,â Macklem said in a CTV Question Period interview with Evan Solomon, which aired Sunday. “I think for a lot of people transient means it’s going to end quickly and maybe I’m not sure what the right word is, but it’s probably something like you know, transient but not short-lived . “
The inflation rate in Canada currently stands at 4.4 percent, down from 4.1 percent in August, according to the latest data from Statistics Canada. The central bank expects the interest rate to hover around 5% by the end of this year, which remains above its mandate target of 2%.
Canadians have seen that inflation is reflected in certain consumer goods such as meat, dairy products, gasoline and vehicles.
âI want to assure Canadians that we will keep inflation under control,â Macklem said. “And we have the tools, we have the mandate and we will adjust our tools to bring inflation back on target.”
These tools include quantitative easing, a program launched by the bank at the start of the pandemic – where the bank buys government bonds, increases the money supply, to keep interest rates low.
The bank’s key interest rate remained at 0.25% to reduce short-term borrowing costs for businesses and households and to stimulate economic recovery.
In 2020, the Bank of Canada had not forecast an interest rate hike until 2023. With new concerns about inflation far exceeding its initial inflation projections, Macklem has postponed that schedule to 2022.
âWe said it would be around the middle of next year,â he said. “If you want it in months, between April and September.”
HOUSING “LIKELY TO REMAIN SOLID”
Inflation is also affecting the housing market, with the cost of homes rising 14.4% from a year ago. But Macklem says low interest rates are fueling strong demand for housing.
âFor some time now, we have been expressing our concern about housing,â he said. âIt’s a vulnerability here in Canada.
The Canada Mortgage and Housing Corporation echoed these concerns, saying the housing market is more vulnerable to a potential downturn. Its assessment of the housing market indicates that low interest rates, government support and disposable income are the main drivers of increased home purchases.
Macklem says Canadians are pushing hard to get the home they want, but doesn’t expect the kind of house price hikes to continue indefinitely.
âI get letters from Canadians, I get letters from young families,â he said. “I recognize that people have difficulties and that the solution to this problem is the supply, we have to increase the supply of housing.”
WHAT ABOUT BITCOIN?
The Governor of the Bank of Canada does not see Bitcoin as part of the future of digital currency.
âBe clear, Bitcoin is not a digital currency,â Macklem said. “People don’t use Bitcoin to buy things.”
Macklem says cryptocurrency is an investment and the amount of things that are bought and sold is still very low.
However, with an increasingly digital economy, the Bank of Canada has invested time and research into the potential development of a digital currency. Macklem says the decision of whether Canada has a central bank digital currency rests with the finance minister.
âWe have banknotes, and we are going to have banknotes, at least while I’m governor, they won’t leave,â he said. âAt the same time, we know that our economy is becoming more and more digital, and the pandemic has accelerated this. “