Poilievre’s vitriol looks foolish after Bank of Canada weathered storm

Opinion

It turns out the Bank of Canada is not “financially illiterate” after all — now that it has largely wrestled inflation to the ground, with relatively minimal economic pain.

I wonder if federal Conservative Leader Pierre Poilievre, who accused the bank in 2022 of being financially illiterate, will apologize for his inaccurate and vitriolic comments. After all, the Conservative leader was wrong: the bank managed the country’s soaring inflation as well as could be expected and showed no signs of being financially illiterate.

Poilievre, who wants to be Canada’s next prime minister, should have the decency to acknowledge that. He probably won’t.

The Bank of Canada cut its key interest rate by 25 basis points Wednesday to 4.75 per cent. The move was largely expected after inflation fell to 2.7 per cent in April, very close to the central bank’s two per cent target.

The bank can’t quite claim victory in its fight against inflation, but it’s pretty close.

Bank governor Tiff Macklem said Canadians can expect further interest rate cuts as long as inflation continues its downward trend.

The bank managed inflation — which peaked at 8.1 per cent in June 2022 — relatively well. It wasn’t painless economically. It can’t be. Raising rates to curb inflation is a deliberate policy to slow the economy and reduce the demand for goods and services. It’s always going to cause some pain. The trick is to minimize the economic fallout as much as possible, which the bank did.

The best case scenario when fighting high inflation is to slow the economy just enough to stabilize prices without going into recession. That’s not always possible. In the 1970s and 1980s when inflation surpassed 12 per cent, the central bank had no choice but to jack up rates well beyond where they’ve been over the past two years. It worked, eventually, but it caused prolonged recessions. The economic pain was wide and deep. Interest rates were above 20 per cent.

It was far less painful this time around, in part because inflation was nowhere near as bad as it was in the 1970s and 1980s.

The Bank of Canada embarked on a series of interest rate increase in 2022 and raised the rate to five per cent by July 2023, where it remained until this week.

There’s been healthy debate on whether the bank waited too long to start raising rates in 2022, or whether it should have lowered rates earlier this year, after inflation fell significantly, to minimize economic pain.

There are no right or wrong answers to those questions, which is why even economists don’t agree among themselves on the timing of the rate changes.

Economic issues are rarely cut and dried. Monetary policy is no different. Every lever the central bank pulls, whether it’s interest rate changes or money supply adjustments, will have intended and unintended consequences. The bank’s job is to make informed decisions using the best available information it has at the time. It has largely done so in its two-year battle against inflation.

The result? Inflation is close to the bank’s target level, Canada achieved that without going into recession, and it was the first G7 country this week to cut interest rates. Those are pretty decent accomplishments.

Naturally, some Canadians experienced more pain than others over the past two years, particularly those who lost jobs or saw their businesses go under. Price inflation itself hurt lower-income Canadians the most, especially on food items and housing. But it could have been worse if the Bank of Canada was not resolute in its fight against inflation.

Which brings us to Poilievre and his “financially illiterate” comment. The Tory Leader was reacting to a Bank of Canada report which, among other things, noted that Canadians with higher levels of financial literacy were less likely to own cryptocurrency, like Bitcoin. Poilievre, who once urged Canadians to “opt out” of inflation by buying cryptocurrency, didn’t like the bank’s findings.

“This from the same people who promised we’d have ‘deflation’ right before inflation hit a 30-year high,” Poilievre wrote on Twitter at the time. “It is our central bank that is financially illiterate.”

It was a malicious and entirely inaccurate charge. One can disagree with the bank’s decisions without accusing it of being financially illiterate. If the bank were financially illiterate, it would not have been able to manage inflation and monetary policy as well as it has over the past two years.

Poilievre should acknowledge that publicly and admit his accusations were foolish and wrong.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck
Columnist

Tom Brodbeck is a columnist with the Free Press and has over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.

Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.

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