Bank of Canada governor says they will be clearer in the coming years

The man at the helm of Canada’s central bank says the Bank of Canada plans to be clearer in the coming years when it lets the cost of living rise for the good of the economy.

Governor Tiff Macklem said on Dec. 15 that the issue comes down to the trust Canadians have in the Bank of Canada to make sure the pace of price increases don’t run too high.

The Bank of Canada and federal government agreed this week to keep the central bank’s inflation target range of one to three per cent, but the bank will also now more formally keep tabs on the labour market when making interest rate decisions.

In a virtual speech to Empire Club of Canada, Macklem said that may mean the bank may sometimes let inflation run at the higher end of its target range if it helps bolster the job market.

But he also noted that high inflation is difficult for many Canadians because as the cost of living goes up, households have trouble stretching to pay their bills.

Statistics Canada reported earlier on Dec. 15 that the annual pace of inflation held steady in November at an 18-year high as the consumer price index rose 4.7 per cent compared with a year ago.

Over that same stretch, however, wages only went up by 2.8 per cent, meaning that consumers, on average, saw a drop in their purchasing power.

Wages usually lag behind inflation, but with the tight labour market causing wages to already increase substantially for job hoppers, the amount paid to workers could soon catch up to the pace of price gains, said Tu Nguyen, an economist with accounting firm RSM Canada.

A key driver of inflation in November was once again the price of gasoline, which rose 43.6 per cent compared with the same month a year earlier, slightly above the October year-over-year rise of 41.7 per cent.

Supply chain disruptions and low crop yields helped push food prices up 4.7 per cent in November compared with the same month a year ago for the largest increase since January 2015 when prices went up by 5.4 per cent.

Statistics Canada also said on Dec. 15 that the November inflation reading was the first without special consideration for certain goods and services that were unavailable because of the pandemic. The agency also noted that the data is largely unaffected by November flooding in British Columbia because the majority of prices were collected before it occurred.