Oliver Says Canada Inflation Should Stay Around 2% Target

Canada’s inflation rate should stay around the central bank’s goal after an unexpected accleration in May, Canadian Finance Minister Joe Oliver said.

“The core inflation rate has not really moved up very much and we think we’re going to be in the 2 percent target that was set by the Bank of Canada,” Oliver said in an interview with Bloomberg Television’s Anna Edwards today. “They’ve indicated, and private sector economists have indicated, that rates will moderately move up over a three- or four-year period.”

Data on June 20 showed Canada’s inflation rate accelerated to 2.3 percent in May, exceeding the Bank of Canada’s goal for the first time in more than two years. The quickening was led by energy costs and sparked increases in the Canadian dollar and bond yields as investors increased bets that Bank of Canada Governor Stephen Poloz may change his view that core inflation will remain below 2 percent.

“I haven’t heard people saying there’s a concern about inflation rocketing upwards,” Oliver said in a seperate interview in London today. “According to the bank, we’re not at risk of a major deflationary period either so I think it’s going according to what the bank has set as a target.”

Key Rate

Poloz kept his key lending rate at 1 percent on June 4 with a neutral bias, and said the risk of persistent low inflation remains after a rise in energy costs.

The Bank of Canada predicted in April inflation would average 1.6 percent from April to June, and not reach its target until the first quarter of next year. The rate was 2 percent in April.

Core-price gains, which exclude eight volatile products, increased 1.7 percent in May after a gain of 1.4 percent the prior month. That rate was forecast by the BOC to average 1.2 percent this quarter and to reach 2 percent in the first quarter of 2016.

The finance minister said the government intends to lower taxes as its budget moves into a surplus of more than 6 billion Canadian dollars ($5.6 billion) next year.

“We think a prudent approach to fiscal policy, really spending what you can afford to spend and not incurring more debt, is the right way to go for jobs and growth,” he said. “We’re on the road to a surplus and that’s absolutely crucial because we will now have more money available for social programs and particularly to reduce taxes, which is our intent next year.”

Indebted Consumers

Poloz said on June 12 that the country’s financial system is threatened by risks from indebted consumers and a domestic housing boom. The government has tightened mortgage-lending rules on concern about overbuilding of condominiums in Toronto and Vancouver.

“What is happening now is that there has been a slight moderation, but prices are continuing to go up,” Oliver said. “We want to do it slowly, gradually, understanding the broad trends here and the objective is to reduce the government’s involvement and to ensure rules are in place that things don’t get overheated.”

Canada Mortgage & Housing Corp., the Bank of Canada and the Organization for Economic Cooperation and Development “all believe that we’re not into a bubble and that a soft landing is the most likely scenario,” he said. “But as minister of finance I am continually monitoring the real-estate market and household debt.”

On the global economy, Oliver said that the U.S. is heading toward a “reasonably solid” economic expansion, while slow growth is a threat in Europe.

“When we look at China some of the very recent results are pretty positive but there’s a bit of a concern that things may not be quite as robust as they have been,” he said. “Could it moderate a little bit? All that has pretty profound implications for Canada’s exports.”

Oliver, 74, became finance minister in March, replacing Jim Flaherty, who died weeks later.

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