Inflationary pressures are here for good, warns Louis Vachon, while he returns the keys to the National Bank.
Yes, there is the cyclical effect of the COVID-19 pandemic on supply chains and the level of demand, but other more structural changes will help keep the inflationary wind blowing even after the crisis, explained the banker Friday to the Council of International Relations of Montreal (CORIM).
New technologies, automation and digitization can normally be expected to improve productivity and put downward pressure on prices in the long run, like all technological innovations. But these changes will not come alone, he believes.
It will also be necessary to rely on the fight against climate change and the decarbonization of the economy, which will come with an increase in carbon pricing and an explosion of investments in green infrastructure and will inevitably result in an increase in the cost structure. . And then, geopolitical factors will also come into the equation.
China and the West
It is not only COVID-19 that can disrupt supply chains, he recalled in response to questions from the former journalist and now president of the Institut d’études internationales de Montréal from UQAM, Bernard Derome. “The more tense context between China and the West is here for at least a few years,” and it is sure to complicate trade.
Louis Vachon was therefore not surprised to see the Bank of Canada decide, this week, to stop its massive injections of liquidity into the financial markets in addition to signaling the start of an increase in its interest rates, probably more sooner than expected.
He believes that it is high time that governments specify how they intend to reduce their deficits and restore the balance of public finances. If they were able to intervene so energetically during the current crisis, it is because they had known how to impose this discipline on themselves before and because they had gained the necessary financial leeway. “For the next generations and the next crises – which are more or less guaranteed to occur – we must now rebuild this room for maneuver. “
Sudden arrival
President and CEO of the National Bank since 2007, Louis Vachon was only a few hours away from his retirement. He must give up his place on 1er November to the current Chief Operating Officer of the National Bank, Laurent Ferreira. He leaves a financially healthy company with a total compound annual return of 13% for the 14 years of his rule.
Arrived in the midst of the commercial paper crisis in Canada in 2007, and only a year before the American investment bank Lehman Brothers brought down all of global finance, Louis Vachon had his share of difficult times at the helm of the National Bank.
“It’s never the fun, but I’m not very anxious by nature, ”explained the man in his late sixties. It’s all about balance, he continued, and accepting that “the only way not to make mistakes in finance is not to take risks. And if you don’t take risks, as a financial institution, you are not playing your social and economic role ”.