[ad_1]
We apologize, but this video has failed to load.
The economist, who led Canada’s central bank from 2013 to 2020, said the country’s stronger-than-expected growth in the first half of the year was driven by population increases and the resolution of unique supply shocks from the pandemic. An early year jump in household spending was likely a mirage, he said, driven by savings built up during the COVID-19 lockdowns.
This advertisement has not loaded yet, but your article continues below.
“I don’t think the consumer is as resilient as the data will make them look,” Poloz said.
Poloz didn’t criticize the central bank or his successor. But he said it’s “just arithmetic” that Canadian households, which carry record levels of debt, will be more sensitive to higher rates than before the 2008 financial crisis.
Many already started trimming spending last year, he said. It’s just taking a while for the bite of higher borrowing costs to fully show up in the data.
For example, Canadian auto sales have been up every month this year. Some might view that as evidence rate hikes aren’t working, but Poloz said it likely reflects decisions made in 2022 to buy cars that couldn’t be delivered until 2023. Now, those cars are in garages, and consumers are feeling the weight of financing them.
This advertisement has not loaded yet, but your article continues below.
If policymakers misread those dynamics, they might keep rates high for too long, Poloz said.
I don’t think the consumer is as resilient as the data will make them look
Stephen Poloz
“We have all the ingredients of a disinflation that’s pretty orderly,” Poloz said.
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.
This advertisement has not loaded yet, but your article continues below.
“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.”
When you look out and it’s all foggy, when in doubt, keep your hand on the wall
Stephen Poloz
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.
“We could have a recession, we could have stagflation, we could have a soft landing, or a softish landing. If someone gives you a definitive answer, they’re making it up. The tools don’t exist to do that,” he concluded. “As a business or as a household, prepare yourself for a range of possibilities.”
— With additional reporting from Laura Dhillon Kane.
[ad_2]
Source link