Tiff Macklem is the governor of the Bank of Canada. After the federal election on Sept. 20, he will still hold that position.
There is no one on the ballot who is campaigning to be the next Bank of Canada governor, least of all Justin Trudeau. So while Canada’s prime minister — whomever that happens to be after Sept. 20 — ought to be mindful of the independence of the Bank of Canada, he or she absolutely should think about monetary policy.
To that end, it was a rather stunning admission this week from Canada’s current prime minister. Or, perhaps it was an awkward gaffe. Maybe it was something else. Either way, it was very bizarre to see and hear Trudeau openly state that he doesn’t think about monetary policy.
Again, we shouldn’t want federal leaders running around making promising about interest rates or bond purchases. But the question Trudeau was responding to was quite direct and quite relevant: with the Bank of Canada’s mandate set to expire at the year, does Trudeau believe that that mandate is in need of change?
His full response was, “When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”
Regardless of the Liberals’ fiscal priorities, this is something Canada’s next government is going to have to confront. The current Bank of Canada mandate aims to keep inflation at around two per cent, or at least in the confines of a range of one to three per cent. Canada’s inflation rate for July jumped to 3.7 per cent, the highest rate of increase since 2011.
Now it’s possible that many of the factors driving that increase are temporary. The price of oil was at rock bottom last year, for example, and has surged considerably since then. That’s led to some large increases in the price of gasoline, which is driving much of the inflation increase.
For the most part, central banks have been quite successful over the last few decades in keeping a lid on inflation, for which we should be grateful. We saw the consequences of high inflation in the 1970s.
But one of the strategies for countering inflation is raising interest rates. That approach can impose its own costs on Canadians who are paying mortgages or carrying other forms of debt. There’s an important balance to be struck here and so the next government has a big decision to make.
Should we adjust the Bank of Canada’s inflation mandate? There is a range of opinion on this, everything from raising the target to lowering it to keeping it where it is.
It’s not at all unreasonable to ask someone aspiring to be the next prime minister — and especially someone who at the moment still holds that position — what their thoughts on all that might happen to be. To whatever extent the prime minister was intending to be glib, this is a matter that deserves a fair deal more seriousness and maturity.
It’s true that Canadians might not be fully versed in all the nuances and differences between fiscal and monetary policy or the full breadth of the Bank of Canada’s roles and responsibilities. That doesn’t mean this won’t be a problem for Trudeau, however.
Canadians understand what inflation is, and how sustained higher inflation rates could pose a problem when it comes to making ends meet. Ultimately this is a fairly straightforward pocketbook issue, even if we’re not all economists.
It obviously remains to be seen whether inflation is going to be a concern moving forward. But I suspect there’s some political peril in casually dismissing concerns or openly professing one’s disinterest in the matter.
Yes, Trudeau is deserving of criticism for his answer to the question, and yes, this gaffe could hurt him in the polls. Hopefully, the silver lining here is that all the party leaders come away with a deeper appreciation for the need to understand, prioritize, and communicate to Canadians about this important issue.