Macklem expects inflation to rise

Bank of Canada governor sees jump to three per cent from 2.2

The Bank of Canada has a goal of maintaining an inflation target of around two per cent, but governor Tiff Macklem said Thursday he expects inflation to rise to around three per cent in the next few months.

“A year ago, the economy was just basically going over a cliff; large parts of the economy were shutting down and many prices – prices of travel, price of gasoline – absolutely plummeted,” he told reporters during a virtual news conference.

“So, a year later, there’s big year-over-year increases in those prices. So, that will temporarily boost inflation to around three per cent in a couple of months, but we do expect inflation to come down after that.”

The reason inflation will return to closer to two per cent, Macklem said, is that large parts of the economy remain very weak. Of interest to Atlantic Canadians, he said tourism is a large part of the economy, and that sector has been largely shut down.

“There are far too many Canadians out of work, and when you’ve got a lot of excess supply in the economy, that puts downward pressure on inflation,” Macklem said.

There are parts of the economy, such as housing, which are strong in the United States, as well, and that is boosting lumber prices, he said during a follow up interview.

That’s captured in the overall consumer price index. But, looking at the whole CPI and the trajectory of inflation, it will go up temporarily and then tend to come down, Macklem said.

Earlier Thursday, he gave a speech to university students and professors from 12 Atlantic Canadian universities about the benefits of an inclusive economy.

“Diversity and inclusion are critical to our success as a central bank in the service of Canadians. They are essential for the economics profession to attract the best talent and foster ingenuity and innovation,” he said.

“And they matter for the whole economy. A more inclusive economy is a bigger economy, a more prosperous economy with more room to grow without creating inflationary pressures.”

PANDEMIC PRESSURE

This issue is not new, he said, and we are still in the midst of a global pandemic, but one of the most striking features of it has been the way it has worsened

inequalities in society.

"Young people, low-wage earners, women and racialized Canadians have borne the brunt of the job losses because they hold so many of the jobs in the hardest-hit sectors," he told his audience.

"Output in high-contact service sectors, such as retail stores and restaurants, remains almost 20 per cent below where it was before the pandemic. Meanwhile, the combined output of the rest of the economy is now slightly above its pre-pandemic level."

The pandemic has also widened other divides, Macklem said.

The closing of schools and daycares has been particularly hard on women because they still carry a heavier load for child care. It has also been unfair to those who can’t work remotely and to those who can but don’t have access to

high-speed internet.

“My point is that the pandemic makes fostering an inclusive economy more important than ever, said Macklem.

“We won’t fully heal the economy until we address these unequal impacts. And rather than just trying to recover to where we were before the pandemic, maybe we can bring the economy to a better place for everyone.

DIVERSITY PUSH

Economic research has already settled the question of whether diversity and inclusion bring benefits, he said.

"We know they do. Diverse and inclusive groups make better decisions. That’s because they can avoid the group-think that happens when decision makers all have similar backgrounds and approach problems in the same way,” he said.

“If you bring diverse perspectives and experiences to a problem, you get novel solutions, creativity and higher productivity. Companies that harness these benefits give themselves a clear competitive advantage.”

Over the past decade, Canadian workplaces have become more diverse, and finance is among the industries that have made the most progress, particularly in terms of representation on boards. Despite this progress, he said, there is still a long way to go.

Survey data shows that significant numbers of people working in financial services have concerns about issues such as stigma around maternity leave and unequal access to career advancement.

“Clearly, we can, and must, do better,” Macklem concluded.

Bank of Canada governor Tiff Macklem said he expects inflation to rise from two to three per cent in the next few months.