Affordability crisis can be fixed through productivity, says Bank of Canada

Nicolas Vincent, the Bank of Canada's external deputy governor, says boosting Canada's productivity is the best way to address the affordability crisis.

As Canadians struggle with the high cost of living, the Bank of Canada says the key to making life more affordable for the long-term is by increasing the economy’s overall productivity.

That’s what was described by the central bank’s external deputy governor Nicolas Vincent, who gave a speech at an event in Quebec on Wednesday.

Vincent said that by improving productivity, Canadians would see their incomes rise while also keeping inflation low.

Vincent’s proposal suggests it may be more effective to find ways to increase the amount Canadians earn rather than focusing on lowering prices for goods, services and housing.

“Deep down, Canada’s affordability problem is really a productivity problem. … To make things more affordable, we need to raise our income. And the way to grow our income is by increasing productivity,” said Vincent in his speech.

“Years of weak business investment means productivity in Canada is lower than it could be. When productivity is lower, wages don’t rise as quickly, so household spending slows and, with it, demand for products and services.”

The concept behind boosting economic productivity is that if businesses and industries grow and increase their production then Canadians would earn more money from their pay cheques to better afford food, shelter and other necessities.

At the same time, the thinking goes, Canadians would be able to afford current prices because while their incomes rise, increases in the prices for goods and services would, in theory, remain relatively stable.