Canada's inflation is improving, but Poloz highlights the importance of addressing downside risks
Former Bank of Canada Governor Stephen Poloz believes Canada is on the right track to control inflation.
In an interview with BNN Bloomberg, Poloz stated, “everything is going as it should,” with inflation now at 2.5 percent. He pointed out that downward pressure is building, signalling possible risks to the downside.
Poloz, who now serves as a special advisor at Osler, remarked that risks are accumulating, adding, “I think the risks actually are accumulating on the downside now.”
According to Statistics Canada, inflation in July was at 2.5 percent, the lowest level since March 2021. Poloz agreed with current Bank of Canada Governor Tiff Macklem's approach of monitoring downside risks, given the possibility of economic challenges.
Macklem, during a July press conference, stated that while the inflation target is in sight, risks are emerging, “We need growth to pick up, so inflation does not fall too much, even as we work to get inflation down to the two percent target.”
Poloz echoed this view, saying, “It’s always this risk. You’re always watching the target, but your target is the last thing to move.” He stressed the importance of steering economic policy carefully to avoid overcorrecting.
While Poloz is optimistic about inflation progress in both Canada and the US, he warned that a soft landing is not guaranteed. Speaking on the possibility of a Canadian recession, he said, “I wouldn’t call one, but we should be prepared for one and not pretend it can’t happen.”
Poloz also addressed Canada’s ongoing productivity issues, noting that the country lags global peers. He attributed part of this problem to an unfavourable investment environment. The Bank of Canada has previously noted that productivity growth in Canada has stagnated for decades.
Poloz sees immigration as a key factor in boosting productivity. He emphasized that with a slow-growing workforce, Canada’s future economic growth will depend heavily on immigration.
Although immigration presents challenges such as housing shortages, Poloz described them as “bumps along the way,” necessary for long-term growth.
As head of a federal task force focused on increasing pension fund investment in Canadian businesses, Poloz is working to remove barriers to pension investments.
He stated, “It’s about looking for impediments or obstacles that [pensions] come up against that may prevent them from having as good as a playing field here as is offered to them in other economies.”
The task force continues to explore ways to make Canadian investments more attractive to pension funds. Poloz emphasized that this is “an ongoing conversation.”
