RBC CEO McKay sees increasing risk of inflation without growth

RBC CEO Dave McKay said the risk is increasing that consumers spending their pent-up savings from the pandemic will exacerbate inflation without spurring significant growth.

Royal Bank of Canada Chief Executive Officer Dave McKay said the risk is increasing that consumers spending their pent-up savings from the pandemic will exacerbate inflation without spurring significant growth.

“We’re increasingly becoming concerned that, with the lack of supply of labor, the lack of supply of goods, the cost of energy increasing, that we’ll consume these savings -- and will the spending power just lead to an inflationary environment without growth, or, in the worst case, stagflation?” McKay said Wednesday at his bank’s Global Financial Institutions Conference. “I think that risk has increased.”

Canada faces a longer-term threat that rapidly increasing housing prices in major cities such as Toronto, Vancouver and Montreal will hurt economic growth by restraining spending in categories including travel and goods, McKay said.  

“Consumers have made the decision to stretch themselves into a house,” he said. “I worry about the drag it has on the economy as we raise rates and have more disposable income going to servicing debt.”

The housing situation may also make it more difficult to attract talent, McKay said. Royal Bank has “more open jobs than we’ve had in a long time,” and the bank is looking at how many it will be able to actually fill, he said, and how to use technology to help deal with remaining vacant positions.