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Inflation: Bank of Canada under attack – CTV News
OTTAWA –
The Bank of Canada has come under a rare attack from critics after misjudging inflation and locking itself into rigid forward guidance that prevented it from reacting swiftly as prices surged and Canada’s economy began to overheat.
One of the world’s leading central banks, it is now being forced to play catch-up, hiking interest rates more aggressively than originally expected just as Canadian household debt levels hit new highs, surging far above other G7 nations.
With a possible recession looming, the bank is facing questions from politicians, economists and even the general public about the opacity of its decision-making process and renewed calls for it to release minutes, a common practice among many of its peers.
For its part, the Bank of Canada has admitted missteps and is promising more transparency, including an analysis of inflation forecast errors, due in July.
But it still faces near daily attacks by politician Pierre Poilievre, the frontrunner to lead the opposition Conservative Party, who regularly takes to social media to accuse the central bank of being both incompetent and a government puppet.
He has also pledged to fire Governor Tiff Macklem if elected, a move that would require changing the law but that nevertheless underscores the level of discontent.
“Is there always room for more transparency? Probably. That’s something that we’re reflecting on right now,” Senior Deputy Governor Carolyn Rogers told Reuters in an interview this month. “It’s something we think about a lot.”
The Bank of Canada, which is independent in setting policy, has not faced this level of political heat since the early 1990s, when then-Liberal opposition leader Jean Chretien railed against Governor John Crow over his high-interest rate policy.
Poilievre, not yet an opposition leader, is unlikely to become prime minister anytime before 2025, when the next election is due. But his attacks come at a time when public trust that the central bank will curb inflation is vital for the economy.
The Bank of Canada, like many other central banks, held that inflation was “temporary” or “transitory” into the fall of 2021, and did not start raising rates until March 2022, when inflation was already more than double the 2% target.
Prices are now rising at levels not seen since 1983, hitting 7.7% in May, and above target for 15 months. With the price of everyday essentials surging, the risk of inflation becoming entrenched is growing.
A Conference Board of Canada survey released this week found three-quarters of Canadians expect inflation to still be above target in three years. And the Bank of Canada’s own data shows declining trust in its ability to keep inflation low and stable.
“How do we maintain credibility? The number one thing we do is we get inflation back to target and we’re absolutely focused on doing that,” Rogers said.
“It’s not going to happen overnight,” she added. “But we have laid on a path and we’re on the job.”
‘A FAIRLY SERIOUS COMMUNICATIONS MISTAKE’
The slow start came in part because the bank locked itself into forward guidance in July 2020, promising to keep interest rates at rock-bottom levels until “the economic slack is absorbed,” which was expected to take years.
“If you’ve got a mortgage or if you’re considering making a major purchase… you can be confident rates will be low for a long time,” Macklem said in July 2020.
Sticking to the forward guidance was necessary, said Rogers, because “that’s how we know it’ll work next time.”
But doing so tied the bank’s hands and forced it to react more slowly than it typically would have as parts of the economy overheated, according to interviews with economists and a former central banker.
Macklem also signaled he wanted a full labor market recovery before raising rates, which was later confirmed when the bank’s policy mandate was renewed in December, creating an even more dovish outlook for rates.
David Dodge, Bank of Canada governor from 2001 to 2008, said Canadians were led to believe the central bank was not overly worried about inflation and therefore would hold interest rates “at essentially zero forever, come hell or high water.”
That was “a fairly serious communications mistake,” Dodge told Reuters.
Dodge and others Reuters spoke to all made it clear the central bank was correct to respond forcefully at the onset of pandemic and said the unprecedented nature of the crisis made outcomes difficult to predict.
“We got a lot right. We got some things wrong. We’ve been transparent about that,” Rogers said. “Our job relies on our ability to forecast and in this environment forecasting has been a really big challenge for everyone.”
STILL STIMULATING
Trudeau and Finance Minister Chrystia Freeland have defended the central bank’s independence and attributed surging prices to global supply chain woes and the unexpected war in Europe.
“Nobody gets everything right,” said a senior government source. “But what (the Bank of Canada) didn’t get right was that (Vladimir) Putin was going to invade Ukraine.”
Economists agree the war in Ukraine complicated the situation and drove inflation sharply higher, though it was already becoming persistent before the invasion. Complicating the situation, the central bank is now raising rates even as the federal government continues to unroll stimulus.
Freeland’s office defends that choice, saying this year’s budget is on “a path of swift fiscal tightening – particularly by the standards of our peers,” a ministry spokeswoman said.
With markets betting on a 75-basis-point increase in July, economists say the aggressive tightening risks undermining the bank’s credibility with a public promised cheap money but now facing surging debt servicing costs.
Canada’s once red hot housing market is already showing cracks from higher interest rates, with sales plunging and prices falling off February’s peak.
And the higher rates don’t seem to be helping slow runaway prices, said Ottawa resident David Strva, adding he wasn’t sure he trusted the Bank of Canada to get inflation back to target.
“If they’re only increasing interest rates and that’s the main control they have, I’m not sure how much that’ll do,” he said with a shrug. “Inflation is still going up.”
One way to win back public trust is to release minutes of central bank meetings, said Derek Holt, vice president of capital markets economics at Scotiabank.
“The Bank of Canada says that it is consensus-driven, so if that’s really true in reality, then they should have absolutely no problem disclosing how this consensus was achieved,” he said.
For its part, the Bank of Canada says the fact it takes decisions by consensus is exactly why it does not need formal minutes, and that its quarterly monetary policy report statements “bring transparency to the deliberations.”
Rogers said the bank does its best to “lay out the different perspectives” in its speeches and statements.
But so far, it is doing little to quell critics. Poilievre, a populist and Bitcoin enthusiast, continues to drive the narrative across social media, with tweets and Facebook posts that get thousands of likes from his half million followers.
“They did what Trudeau told them: print money for deficits, causing runaway inflation & a dangerous housing bubble,” he wrote in a tweet earlier this month.
Reporting by Julie Gordon and Steve Scherer in OttawaEditing by Denny Thomas and Deepa Babington
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We're still stockpiling reusable bags. Big grocers have adopted solutions, but experts have concerns – CBC News
Canada’s plastic bag ban has had an unintended consequence: a proliferation of reusable bags piling up in basements, closets and, eventually, landfills.
“They’re everywhere,” said environmental researcher Tony Walker. “We’re drowning in them, and we shouldn’t be.”
To combat the problem, several of Canada’s big grocers have introduced solutions. Last week, Walmart launched a free national recycling pilot program for the retailer’s reusable blue bags. Competitors Sobeys and chains owned by Loblaw Companies Ltd. use recyclable paper bags for grocery delivery.
But some environmental experts argue that paper bags are also problematic and that the best solutions are those that help customers actually reuse their reusable bags.
“We just can’t keep giving [them] out,” said Walker, a professor at Dalhousie University’s School for Resource and Environmental Studies in Halifax. “We’re only meant to have a few of them, and we’re meant to use them until they fall apart.”
In late 2022, the federal government rolled out a ban on the manufacture, import and sale of several single-use plastics, including checkout bags. The regulations are being contested in court, but in the meantime, they remain in effect.
The regulations have made single-use shopping bags scarce in Canada, but they’ve also led to the proliferation of reusable bags, especially for grocery delivery.
“It just creates more waste, which is what we’re trying to avoid in the first place,” Walmart customer Udi Sela said in a CBC News interview in late 2022.
At the time, Sela, who lives in Maple, Ont., estimated his family had acquired about 300 reusable Walmart bags via grocery delivery.
“We can’t return them, we can’t do much with them.”
Now, a little more than a year later, Walmart has launched a pilot project to address the problem.
It allows customers to pack up their unwanted reusable Walmart blue bags and ship them — at no charge — to a facility where they’ll get a second life.
How it works
According to Walmart, bags in good condition will be laundered and donated to charity, primarily Food Banks Canada. Damaged bags will get recycled into other materials. Reusable bags typically can’t go in blue bins because they’re costly and difficult to recycle.
Customers must sign up for Walmart’s program, and enrolment is limited.
Jennifer Barbazza, Walmart’s senior manager of sustainability, said the retailer will fine-tune the details as the program progresses.
“[We] know that some customers have more reusable bags than maybe they need,” she said. “One of the things that we’re really excited to learn about from the pilot is customer acceptance and customer feedback.”
Reusable bags are living rent free in closets and car trunks across the country. Most major retailers made the switch away from single-use plastic bags about a year ago, but it’s taking time for some customers to catch on. They’re forgetting to bring their bags with them, and buying more every week.
Udi Sela has already signed up.
“I definitely think it’s a step in the right direction,” he said in an interview on Friday. “It’s something that needed to be done a while ago. God knows we’ve got a ton of bags kind of piled up.”
He said he’s concerned that some customers may find mailing the bags a hurdle. However, it’s not deterring Sela, who soon plans to ship hundreds.
Passing the buck?
Not everyone is keen on Walmart’s project. Emily Alfred, a waste campaigner with Toronto Environmental Alliance, said donating the bags to the food bank is just passing on the problem.
“We need to remove waste from the system entirely, and just sending these somewhere else for someone else to deal with is not really a solution,” she said.
Alfred said a better option is a program Walmart piloted in Guelph, Ont., in 2022. For a fee, customers could check out reusable bags from an in-store kiosk and later return them to be cleaned and reused.
“That’s a real circular reuse system,” she said.
Walmart’s Barbazza said the retailer is continuing to explore different reusable bag programs, including ones placed in stores.
She also said she’s confident Canada’s food banks will make good use of the bags.
“There’s definitely a need for sturdy items to distribute materials to the food bank clients.”
The paper problem
Among Canada’s major grocers, only Walmart offers a reusable bag program for all customers.
Loblaw recently switched from reusable to recyclable paper bags for grocery delivery. Sobeys did not respond to requests for comment, but according to its website, the grocer also uses paper bags and “reusable options” for home delivery.
Several environmental experts say paper bags aren’t a good solution, because their production leaves a sizable carbon footprint.
“Paper bags are a problem,” Alfred said. “It takes a lot of energy to recycle paper, takes a lot of trees and energy to make new paper.”
Loblaw said it continues to explore a variety of more sustainable solutions. “It’s a challenge we’re committed to addressing,” spokesperson Dave Bauer said in an email.
Both Walker and Alfred applaud Metro for its grocery delivery program, because the grocer, which operates in Ontario and Quebec, reuses delivery materials.
Metro said customers can get their goods delivered in a cardboard box or reusable bags, which can be returned and used for another delivery. Or customers can opt for a plastic bin and remove their groceries from it upon arrival.
Metro does not offer similar programs for in-store shoppers.
Alfred said the federal government should introduce regulations that mandate retailers adopt effective reusable bag programs for all customers.
“It’s up to our governments and people to demand that these companies do better,” she said.
But Walker suggested that the regulations would be hard to enforce and that incentives could be a better tactic.
For example, if retailers increased the price of reusable bags, shoppers might be less likely to forget them when they head to the store, he said.
“When the cost is a disincentive to do an activity, people change their behaviour.”
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Deputy Prime Minister and Finance Minister Chrystia Freeland says she thinks unhappy premiers will come around on measures in the federal budget that touch on provincial legislation, even as they push back.
At an event in Toronto on Sunday, Freeland — who presented the federal budget on Tuesday — said the national government needs to push ahead on such issues as housing and she was “extremely optimistic” premiers would choose to co-operate.
“Housing is a national challenge, and the federal government needs to be leading the charge,” she said.
“My own experience has been when there are big issues that really matter to Canadians, after all the sound and the fury, people are prepared to roll up their sleeves and find a win-win outcome for Canadians.”
Several premiers have pushed back against the federal government in recent months and again after the budget was released on the grounds that some measures touch on provincial jurisdiction.
This week’s federal budget has premiers lashing out at Prime Minister Justin Trudeau over a planned increase to capital gains taxes as well as what they say is overstepping on infrastructure and pharmacare.
In a letter released Friday by the Council of the Federation, which represents the leaders of all 13 provinces and territories, the premiers said Ottawa should have consulted them more ahead of the budget.
Individual premiers have shared more pointed critiques.
“It’s a never-ending spending platform that we’ve seen now for the last 10 years,” New Brunswick Premier Blaine Higgs said on CBC’s Power & Politics on Friday.
“My initial thoughts about the federal budget are that they are overtaxing, overspending, overborrowing and over interfering in provincial affairs,” Alberta Premier Danielle Smith said earlier this week.
Alberta has clashed with the government repeatedly over housing. Smith introduced legislation earlier this month that would require provincial oversight of deals made between municipalities and the federal government, including for future agreements around federal housing funds.
At Issue this week: The Liberals work to sell their multibillion-dollar spending plan and capital gains tax hike. Pierre Poilievre tells Radio-Canada what he thinks of the federal budget. And another province pushes back on the carbon tax.
Freeland said on Sunday that, as an example, the federal child-care program negotiated through a series of deals with provinces and territories showed that co-operation was possible.
Capital gains tax changes criticized
The federal government has also faced some opposition on what was perhaps the most prominent measure revealed on budget day: changes to Canada’s capital gains tax rules. The government has proposed raising the inclusion rate to 67 per cent on capital gains above $250,000 for individuals.
“The 21st-century winner-takes-all-economy is making those at the very top richer, while too many middle-class Canadians are struggling,” Freeland said Sunday, adding the government was asking wealthy Canadians to pay their “fair share.”
“We do need to ensure that we have some revenue coming in. This is a very limited way of ensuring that that occurs,” Treasury Board President Anita Anand said in an interview on Rosemary Barton Live on Sunday.
Treasury Board President Anita Anand joins CBC chief political correspondent Rosemary Barton to talk about the federal budget and its focus on young Canadians — as well as the criticism it’s receiving.
Critics have raised concerns that the changes could result in reduced investment or capital flight.
“The big concern right now … is this going to have a detrimental impact to the progress we’re trying to make in making Canada a hub for innovation,” said Kirk Simpson, CEO of the tech company goConfirm, in a separate interview on Rosemary Barton Live.
“With productivity the way that it is, we want more capital, not less, flowing into business innovation,” Simpson told CBC chief political correspondent Rosemary Barton.
Freeland said Sunday that the changes will affect very few Canadian individuals — the government estimates 0.13 per cent — and the revenue will go to pay for investments in areas like housing.
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