Former BoC governor Stephen Poloz warns against entrenching inflation in expectations

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BANFF, Alta. — Former governor of the Bank of Canada Stephen Poloz says preventing current high inflation levels from becoming embedded into the public’s expectations is key if the country is to avoid falling into recession.

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Poloz says he believes the current cycle of high inflation is transitory, though it could take two years to return to the Bank of Canada’s target rate of approximately two per cent.

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But he says if people become convinced that high inflation is here to stay, that could lead to higher wage settlements that are difficult to reverse.

Spiraling wages in turn could drive inflation even higher, forcing the need for a more difficult economic contraction to get the cost of living under control.

Poloz says while no one knows what is going to happen, the Canadian economy is in a very strong position. He says he believes that cooling the rate of inflation without triggering a recession is still possible.

Poloz made the comments in an interview in Banff, Alta. on Thursday, prior to a speech at the annual Global Business Forum.

This report by The Canadian Press was first published Sept. 22, 2022.