Getting rid of the carbon tax would significantly curb inflation, the head of the Bank of Canada told members of Parliament.
Bank of Canada Governor Tiff Macklem told the House of Commons finance committee Tuesday that removing the federal carbon tax could reduce inflation by as much as 15%.
The inflation rate currently sits at 3.8%, but Macklem claimed that could go down by 0.6% to 3.2% for the next year, without the federal government’s carbon pricing scheme further driving up the cost of goods and services.
The carbon tax adds more than 17 cents per litre to light fuel oil and over 14 cents per litre to the cost of gasoline.
These increases are then passed on to goods, raising the prices of groceries and other commodities.
Statistics Canada reported that 15% of households are cutting back on their grocery costs to afford paying their energy bills.
Macklem’s comments to MPs come on the heels of the Trudeau government’s newly announced three-year pause on federal carbon pricing for home oil heating, which affects few homes outside of Atlantic Canada.
The announcement prompted several premiers to ask for the pause to be extended to natural gas home heating as well, though Trudeau has so far dismissed these calls.
The Bank of Canada has maintained interest rates at 5% with a hope of returning to the target rate of 2% by 2025. The central bank is also expecting a 3.5% Consumer Price Index average until some time next year.
