Higher interest rates are ‘painful’ but ‘worth it’: Bank of Canada’s Macklem

Tiff Macklem says the Bank of Canada’s work to tame inflation with restrictive interest rates is working, but momentum in those efforts might be slowing.

The head of the Bank of Canada says the central bank’s two per cent inflation target is “now in sight” but cautions that persistent price pressures might require additional interest rate hikes.

Tiff Macklem made his remarks to the Calgary Chamber of Commerce on Thursday, one day after the central bank opted to hold its benchmark interest rate steady for just the third time this year.

According to a prepared copy of his speech, Macklem told the assembled business leaders that the Bank of Canada’s efforts to tame inflation with restrictive monetary policy were bearing fruits, but the central bank’s governing council is growing concerned that momentum in the inflation fight has stalled.

“Our two per cent target is now in sight,” Macklem said.

“But we are not there yet and we are concerned progress has slowed. Monetary policy still has work to do to restore price stability for Canadians, and we are committed to staying the course.”

The Bank of Canada governor also acknowledged to the crowd that the path back to the two per cent target is difficult. He noted that much of the current fuel for Canada’s annual inflation rate is the increase in mortgage costs tied to the bank’s own rate hikes, but argued that without tighter monetary policy, “inflation throughout the economy would be a much bigger problem for everyone.”

“Higher interest rates are painful. But getting to the two per cent target is worth it,” Macklem said.

Annual inflation ticked up to 3.3 per cent in July, half a percentage point higher than the previous month.