Macklem states that reducing the carbon tax would only have a temporary impact on inflation.

Bank of Canada governor Tiff Macklem addressed a parliamentary committee on Thursday, stating that eliminating the carbon tax would lead to a one-off drop in inflation, but the effect would only be temporary. Macklem explained that inflation would drop for one year, then return to its original trajectory.

The carbon tax has had a modest impact on inflation, ranging from 0.1 to 0.15 percentage points, according to Macklem. He noted that if the carbon tax had remained constant and not increased, inflation would be closer to 2.8 percent instead of the current 2.9 percent.

Macklem used the example of a tax cut on cigarettes in 1994 to illustrate the temporary nature of the impact on inflation. He emphasized that the Bank of Canada considers such one-time effects when making monetary policy decisions.

Regarding the 2024 federal budget, Macklem stated that it is not expected to have a significant impact on the Bank’s monetary policy forecast. He highlighted the importance of maintaining fiscal discipline, especially in the context of efforts to control inflation.

In conclusion, Macklem emphasized the need to carefully consider the implications of policy changes on inflation and the overall economy. The Bank of Canada will continue to monitor developments closely to ensure stability and growth in the Canadian economy.