Finance Minister Jim Flaherty confirmed he is working on a more explicit inflation mandate for Canada’s central bank, a move that comes as Canadians are increasingly paying more for everyday needs.
Speaking with reporters after Statistics Canada reported on Friday that the core inflation rate has climbed to 2.2 per cent – its highest level in nearly three years – Mr. Flaherty responded to the news by saying he’s more concerned about growth and jobs.
That’s in spite of the fact that core inflation rate is now above the Bank of Canada’s overall inflation target of 2 per cent. Mr. Flaherty and Bank of Canada Governor Mark Carney must jointly decide before the end of the year whether to renew the five-year-old target or make adjustments.
In an all-party vote on Thursday, members of the House of Commons finance committee decided they will hold at least one hearing on whether the bank’s mandate should be changed to include targets beyond inflation, such as full employment or nominal gross domestic product.
However such large-scale changes appear to be off the table.
“The Governor and I have discussed this [inflation targeting mandate renewal]at some length and I think we are understanding each other. We are ... in line with each other on this,” Mr. Flaherty said. “So we’re not talking about a new policy or a new mandate for the Bank of Canada. What we are talking about is being more explicit about what the mandate of the Bank of Canada is.”
Mr. Flaherty’s comments are in line with a report by The Globe and Mail on Monday that the 2-per-cent target is expected to be renewed with a more forceful assertion of what the bank calls “flexible inflation targeting,” or the governor’s right to take longer than usual to bring inflation to the 2-per-cent target.
Liberal MP Scott Brison, who requested the committee review the bank’s inflation target, expressed concern that the minister has already made up his mind.
“I would hope none of the committee [members]have pre-judged the outcome of this exercise and I hope the minister doesn’t either,” said the Nova Scotia MP.
Mr. Flaherty noted that even at 2.2 per cent, the core inflation rate is within the current accepted range.
“People forget that the number is not 2 per cent. The mandate from the government to the Bank of Canada, our agreement, is between 1 [per cent]and 3 per cent. The bank’s doing a good job on that,” he said.
“I’m more concerned, quite frankly, about growth in the economy, and I’m pleased that we’re seeing reasonable, moderate economic growth in Canada [and]some good signs in the United States,” Mr. Flaherty said.
He repeated his warning that European Union leaders must act quickly and more aggressively to resolve the region’s debt issues. “Their delay has made a serious situation a severe situation that endangers the global economy.”
Statistics Canada reported that the overall consumer price index rose to 3.2 per cent in September, primarily because of the rising cost of gasoline and food.
Several economists noted on Friday that the Bank of Canada is unlikely to raise interest rates soon to lower inflation, but the latest numbers likely decrease the odds that the bank will lower rates.
Doug Porter, deputy chief economist for the Bank of Montreal, said in a research note that if core inflation were to stay above 2 per cent the Bank of Canada may start raising rates “sooner than most now expect,” especially if financial markets stabilize.