Stephen Poloz, Bank of Canada governor, tells resource sector to ride it out
Urges sector to keep investing as it adjusts to impact of low commodity prices
Canada is caught in a global commodities "super-cycle" and it could be "considerable time" before the resource sector adjusts, according to Bank of Canada governor Stephen Poloz.
A "super-cycle" is a long-term swing in prices as when high prices for commodities such a copper, oil and gold encouraged investment in those sectors a few years ago, resulting in oversupply that is now driving prices downward.
The wild card can be technological development, such as the advent of shale oil, which can change the nature of the sector.
"Any economy that relies on natural resources will naturally be challenged by large movements in their prices," Poloz said in prepared remarks for his speech to Calgary Economic Development.
CBC News is carrying the speech live.
He acknowledged that his audience in Calgary knows very well the tough impact of price swings, but the only solution is to adapt.
"Canadians should heed the signals sent by price movements. We've adjusted to rising prices; we can adjust to falling ones. These adjustments are never easy. They are often difficult and painful for affected individuals and their families. But they are necessary," he said.
The only role the Bank of Canada can play in the cycle is to keep inflation in check through monetary policy, Poloz said.
Canada's floating exchange rate helps absorb some of the impact of the price movements, he said.
"Total inflation is currently being pushed down by the impact of lower energy costs," Poloz said, adding that the higher prices we're paying for imported goods because of a low loonie are "one-off" effects that the central bank looks past as it sets inflation policy.
"When all the temporary factors are stripped out, the underlying trend in inflation in Canada is in the range of 1.5 per cent to 1.7 per cent, below our target of two per cent," he said.
He urged the resource sector to keep investing as it adjusts to the impact of low commodity prices.
"Even when prices are falling, as they have been recently, our endowment represents a store of value and a source of future riches," he said.