High Oil and Gas Costs May Be Forever, Top Banker Warns

Former Bank of Canada Governor Stephen Poloz has warned that Canadians may need to adjust to permanently higher oil and gas prices.

During an interview this week on CBC News Network's Power & Politics, Poloz argued the inflation rate in Canada may fall but oil and gas prices may remain high.

"The main thing is all this is is a price increase. If oil prices and energy costs stay roughly where they are today then, of course, over the next 12 months what we would get is a gradual unwinding of that effect in the inflation rate," Poloz said.

"That is really important for people to bear in mind. The fact is most of it really is nothing we can control and it will be transitory."

Despite his claim that inflation in Canada would decrease, he explained why this may not be true for gas and oil.

"We might have to pay more for oil and gas forever," Poloz said, according to the CBC report. "And if that's the case, that's not inflation. It's a higher price that we'll have to pay and we'll adjust to that higher price somehow in our economy."

Regarding inflation, Poloz said he expects the Canadian inflation rate to start winding down in the latter half of the year, even if the prices of oil and gas remain high.

He said this was in part because of the actions taken by the Bank of Canada.

Canadian Prime Minister Justin Trudeau has said that Russia's invasion of Ukraine is part of the reason for the energy crisis across the world and earlier this week he said this would be an opportunity for the West to look at cleaner energy resources.

"The resolve of the world to reduce its dependency on Russian oil and gas is morphing into a heightened urgency for the transformation of our energy mix towards lower carbon emissions in our energies in the coming years, " he said on Monday during an event in southern Ontario, according to a BNN Bloomberg report.

U.S. President Joe Biden has also been attempting to address the inflation crisis gripping America as well as the oil and gas price hikes.

Earlier this week, Biden called on Congress to suspend the federal gas tax to help combat the high fuel costs, but the plan has drawn criticism from environmental and climate advocates.

They have argued that the proposed gas tax holiday would boost the fossil fuel industry.

However, Biden has few options at his disposal to lower inflation or bring down energy prices. His decision to endorse the gas tax holiday comes amid growing calls by some Democrats in Congress for the president to do more to show that he's trying to address voters' economic concerns ahead of the midterm elections this fall.

But most economists agree a temporary suspension of the gas tax won't make a big difference.

The tax, which hasn't been raised since 1993 and has never been suspended, is currently 18.4 cents per gallon for gasoline and 24 cents per gallon for diesel fuel. Revenue from the gas tax, which was imposed in the 1930s, goes to the federal Highway Trust Fund, which helps pay for roads, highway and other infrastructure investments.

Stephen Poloz, the-then Governor of the Bank of Canada, leaves at the end of the morning discussion session during the second day of the 2019 ECB Forum on Central Banking, on June 18, 2019 in Sintra, Portugal. Poloz warned that the Canadian economy may need to adjust to permanently higher oil and gas prices. Horacio Villalobos/Getty