Providing stability through uncertainty

Senior Deputy Governor Carolyn Rogers talks about the effects of change and uncertainty on the economy and how the Bank can be an anchor of stability by keeping inflation low and stable.

Watch Senior Deputy Governor Carolyn Rogers speak to the Brandon Chamber of Commerce. Read the full speech.

Three forces are driving change

Canada is adjusting to a series of big economic forces that could permanently alter the economy.

• Trade policy: Uncertainty around US tariffs and shifting global trade policy has kept businesses from investing, leading to fewer jobs and weaker productivity. The Canada-United States-Mexico Agreement is up for renewal this year, but the outcome of negotiations is hard to predict.
• Demographics: Immigration has long supported growth in our economy despite an aging population and low birth rate. But immigration has slowed. That means fewer workers and consumers to fuel economic growth.
• Artificial intelligence (AI): AI could unleash big productivity gains and reduce costs for many services. But anxiety about how it could affect our jobs and lives is growing. Much of AI’s impact will depend on how fast and how widely it’s adopted and how well everyone prepares for and adapts to this transition.

These structural changes require new approaches to our way of thinking, forecasting and making decisions.

We’re ensuring the Bank is ready

This year, we are renewing the agreement on our monetary policy framework with the federal government. Leading up to the renewal, we always review our approaches to see what needs to be updated.

During the period of high inflation that followed the COVID-19 pandemic, public trust in our ability to bring inflation back to target kept a bad situation from becoming worse. The 2% inflation target worked and remains the best framework for the future. But we are exploring better ways to implement our framework.

• We’re improving our ability to detect and assess shocks that can lead to high inflation. This includes using more real-time data and conducting more frequent surveys of businesses.
• We’re looking at how we assess where inflation is going. We target total inflation but, to see the trend, we have focused on measures that strip out volatile items that can vary widely, such as gasoline prices. We’re reviewing these measures and how we communicate about where we see inflation headed.
• We’re looking at how monetary policy interacts with housing demand and supply. We can’t solve housing affordability—that’s an issue for governments at all levels to consider. But we could do more to explain how interest rates and housing market imbalances affect each other.

We know that even though inflation has been near 2% for more than a year, many Canadians feel like life is still too expensive. Wages have risen, but not enough for everyone.

In the long run, improving affordability means improving productivity because that is what can raise our incomes. But affordability starts with keeping inflation in check.

We’re keeping a close eye on Iran

It’s too early to assess the impacts of the war in Iran on growth in Canada, but we’re watching the situation closely. If oil prices stay elevated, income from energy exports will rise. But higher oil prices will squeeze consumers and businesses.

Higher energy prices will push inflation up in the near term. We need to ensure they don’t spread to other goods and services and become ongoing inflation.