Inflation expected to hover near target
Minister stands by Bank of Canada analysis despite May rate jump
LONDON — Canada’s inflation rate should stay around the central bank’s goal after an unexpected acceleration in May, Canadian Finance Minister Joe Oliver said.
“The core inflation rate has not really moved up very much and we think we’re going to be in the two per cent target that was set by the Bank of Canada,” Oliver said Monday. “They’ve indicated, and private sector economists have indicated, that rates will moderately move up over a three- or four-year period.”
Data on June 20 showed Canada’s inflation rate accelerated to 2.3 per cent in May, exceeding the Bank of Canada’s goal for the first time in more than two years. The quickening was led by energy costs and sparked increases in the Canadian dollar and bond yields as investors increased bets that Bank of Canada Governor Stephen Poloz may change his view that core inflation will remain below two per cent.
“I haven’t heard people saying there’s a concern about inflation rocketing upwards,” Oliver said in a separate interview in London Monday.
“According to the bank, we’re not at risk of a major deflationary period either so I think it’s going according to what the bank has set as a target.”
Poloz kept his key lending rate at one per cent on June 4 with a neutral bias, and said the risk of persistent low inflation remains after a rise in energy costs.
The Bank of Canada predicted in April inflation would average 1.6 per cent from April to June, and not reach its target until the first quarter of next year. The rate was two per cent in April.
The finance minister said the government intends to lower taxes as its budget moves into a surplus of more than $6 billion next year.
“We think a prudent approach to fiscal policy, really spending what you can afford to spend and not incurring more debt, is the right way to go for jobs and growth,” he said.
“We’re on the road to a surplus and that’s absolutely crucial because we will now have more money available for social programs and particularly to reduce taxes, which is our intent next year.”