A majority of Canadians don’t want to give the Bank of Canada the flexibility to raise its 2% inflation target, a new poll has found.
About 56% of Canadians are uncomfortable with adjusting the bank’s mandate, according to a poll conducted by Nanos Research Group. Only a third of respondents said they were comfortable with the idea of raising the inflation target.
The poll comes as Prime Minister Justin Trudeau’s government nears a decision on the central bank’s mandate.
Major central banks are grappling with how hot they should let their economies run as they recover from the COVID-19 pandemic.
Annual consumer price gains in Canada hit 4.1% in August, the highest level since 2003, but policy makers led by Bank of Canada Governor Tiff Macklem argue the surge is temporary.
The U.S. Federal Reserve last year gave itself leeway to tolerate periods of inflation above its 2% target. It adopted a policy of "flexible average inflation targeting," with the explicit goal of having inflation run moderately above 2% for a time to make up for periods below that level.
Every five years, the Bank of Canada and the federal government negotiate the monetary policy framework, a process that must be completed by the end of 2021. The bank’s current mandate targets inflation of 2%, within a control range of 1% to 3% -- but it’s been above the upper end of that range for five consecutive months.
Signing off on the central bank’s new mandate is one of the first items on Finance Minister Chrystia Freeland’s desk after Trudeau’s government won re-election on September 20.
Rising prices became a key issue during the campaign, in which the prime minister’s incumbent Liberals were held to a minority in Parliament.
The timing of the mandate renewal poses challenges to Bank of Canada officials, who are winding down emergency monetary stimulus while also facing headwinds from supply-side disruptions that threaten to curb growth.
The central bank will have to decide whether to tolerate the recent high inflation readings or tighten monetary policy sooner and risk slowing down growth.
Stock markets have priced in two interest rate hikes from the Bank of Canada in the next year. Most economists expect the first one in the second half of 2022.
Nanos Research conducted the survey of more than 1,000 people from September 30 to October 3 via telephone and online polling. It is considered accurate to within 3.1 percentage points.
