Low-income Canadians are the hardest hit by high inflation and will be disproportionately affected by the impending economic downturn, Bank of Canada Governor Tiff Macklem said in a speech Monday.
In his keynote address at a central bank conference on diversity, equity and inclusion, Macklem noted that high inflation has adverse and unequal effects.
“High inflation affects everyone, but low-income households feel the burden of high inflation the most,” the governor said. “Low-income Canadians will also be disproportionately affected by the downturn.
He said the rapid pace of recovery and the rebound in employment were mitigating factors for those hardest hit by the pandemic – low-income Canadians, young people and women.
“We are still learning about the longer-term effects of the pandemic, but the scars we were worried about weren’t as widespread as we feared,” he said. “Economic growth returned quickly and workers weren’t sidelined for long.”
The governor said there was “no easy solution” to restoring price stability, but the ultimate outcome of raising interest rates would be better for all Canadians.
The Bank of Canada has raised interest rates aggressively this year in response to inflation that has reached highs not seen in nearly four decades. Since March, the central bank has raised its key rate six times in a row, raising it from 0.25% to 3.75%.
Higher interest rates are expected to significantly cool the economy, with a risk that rapidly rising rates could push the economy into recession.
Labor groups have been vocal about the Bank of Canada’s efforts to rein in inflation, raising concerns about what the downturn will mean for workers.
The governor has previously said unemployment will rise as the economy cools, but is unlikely to reach high levels by historical standards.
While not a substitute for higher interest rates, Macklem said increasing supply in the economy will help dampen inflation, adding that more can be done to help supply grow, the less demand will have to be suppressed.
Macklem also spoke about inequalities in the discipline of economics.
Speaking on the theme of the conference, Macklem said economics has a “me too” account and acknowledged that women in the field face the added burden of harassment.
He said he had worked to create a culture of respect at the Bank of Canada and acknowledged that his female colleagues had experienced harassment that he had never faced.
“Let me be clear. Harassment of any kind can never be ignored, excused, or brushed aside.”
Nojoud Al Mallees, The Canadian Press
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