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.
Story continues below advertisement
“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.
More on Money
More videos
The COVID-19 pandemic caused significant, sudden increases in inflation. The years of supply chain shocks since then, as the world grapples with upended trade norms and worsening climate challenges such as droughts, have caused continuing strain on consumers.
Statistics Canada reported in October that during the second quarter, Canada’s income gap widened to a record high amid a weakening economy, which highlights how Canada’s lowest earners are not seeing their incomes rise as much as higher earners.
Get breaking National news
For news impacting Canada and around the world, sign up for breaking news alerts delivered directly to you when they happen.
Canada’s productivity can be measured by Gross Domestic Product, which dropped slightly in August as U.S. tariffs and trade tensions continued to slow down the economy.
This also has an impact on the job market, with unemployment hovering around seven per cent nationally.
Story continues below advertisement
1:13
What Carney’s federal budget includes for everyday Canadians
Concerns about job security amid an affordability crisis are also leading many Canadians to adjust their holiday spending plans, with a Bank of Montreal survey showing 41 per cent plan to cut back on how much they will spend on gifts and holiday items.
Another survey from Willful showed 58 per cent of respondents were delaying major milestones because of the state of the economy, and 46 per cent said they had to dip into their savings to keep up with daily expenses.
To increase Canada’s productivity, Vincent recommends finding ways to make it easier for Canadian businesses and industries to grow and thrive.
He says this can first be done by simplifying rules and implementing policies that will encourage investments to help small companies expand.
Story continues below advertisement
Vincent also recommends encouraging healthy competition in key sectors such as telecommunications, transportation and financial services to boost efficiency and innovation. He adds that doing so would mean better prices for consumers and businesses alike.
Trending Now
U.S. envoy warns Canada to ‘seriously consider’ avoiding anti-tariff ads
Dolly Parton shares ‘health challenges’ after missing Dollywood event
Finally, Vincent says the workforce will need further investments to encourage Canadians to meet the demand of these business investments. He adds that this can be done by supporting education, making it easier both for Canadians to receive training and having their credentials recognized across territories and provinces as well as abroad.
Vincent points out the Bank of Canada’s role in this focuses on keeping inflation low and stable, and that taking action to increase productivity in Canada may need to come from elsewhere.
4:00
Carney’s budget will drive up costs for Canadians: Poilievre
After the central bank cut its benchmark interest rate last month to 2.25 per cent, Governor Tiff Macklem said the Bank’s ability to boost the economy by adjusting borrowing rates has essentially reached its limit. Macklem added that fiscal policy may be the best way to spur productivity going forward amid the ongoing trade war.
Story continues below advertisement
Prime Minister Mark Carney saw his budget narrowly pass a House of Commons confidence vote on Nov. 17, which includes billions in spending plans for several major projects aimed at boosting the economy through key sectors.
From mining to energy production and infrastructure to shipping port expansion, Carney said these major projects are “part of bigger national strategies to boost Canada’s competitiveness.”
Pierre Poilievre said in a speech earlier in November that Carney’s budget amounted to a “credit-card budget,” suggesting the amount that will be spent on these projects will wind up costing Canadians more for things like housing affordability, food prices and energy costs.
Vincent said in his speech that focusing on increasing Canada’s productivity over the long-term is “worth the effort to improve our standard of living in the years to come and for future generations.”
He added: “Even if the scale of the task seems daunting, there is an optimistic way to approach a systemic problem.”
© 2025 Global News, a division of Corus Entertainment Inc.