Canadian governments need to resist pressure to spend revenue windfalls from higher commodity prices in order to help slow inflation and shore up the nation’s balance sheet, the International Monetary Fund said.
The IMF said inflation in Canada is being fueled in part by excess demand and a tight labor market, and continued monetary and fiscal tightening will be required to rein in price gains. The federal government, meanwhile, should consider reestablishing fiscal anchors to enhance credibility.
So far this year, Prime Minister Justin Trudeau’s government has been pulling in billions more than anticipated thanks to surging incomes on the back of inflation and higher commodity prices. On the monetary side, the IMF expects the Bank of Canada will continue raising its benchmark interest rate to at least four per cent by the end of this year and keep it there for “several quarters” to put inflation on a downward path.
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