Canadian households are reeling after what the Bank of Canada calls the fastest series of interest rate hikes in this country’s history. The central bank says those hikes will cause pain but are necessary to rein in inflation.
Not everyone agrees.
“I don’t think these latest increases were helpful,” Jim Stanford, economist and director of the non-partisan research institute Centre for Future Work, told CBC News. “And I don’t think they will work.”
The Bank of Canada started boosting rates in March 2022. Back then, its key overnight lending rate was at 0.25 per cent. By June of that year, the year-over-year rate of inflation peaked at 8.1 per cent.
Since then, the consumer price index (CPI) has decelerated sharply and rates have gone up 10 times. The bank’s key interest rate now stands at five per cent. The last CPI came in at a yearly rate of 3.4 per cent.
The next batch of inflation data will come in next week, and early forecasts show it may fall as low as 3.1 per cent.
And yet the central bank says rates must go higher.
“We are trying to balance the risks of under- and over-tightening monetary policy,” Bank of Canada governor Tiff Macklem told a news conference on Wednesday.
“If we don’t do enough now, we will likely have to do even more later. If we do too much, we risk making economic conditions unnecessarily painful for everybody.”
‘Broader toolkit’ needed to fight inflation
Many economists have said the bank has already done too much.
CIBC senior economist Andrew Grantham said in a note on July 3 that another hike would be “at best unnecessary, and at worst a mistake.”
If the bank’s decision to increase rates isn’t the best option, what is?
Stanford says the fact is that central banks have a limited range of tools they can use.
Jim Stanford, economist and director of the Centre for Future Work, says instead of leaving the inflation crisis to the Bank of Canada to tackle, the federal government should be doing more. (Submitted by Jim Stanford)
“I think part of our problem is that we said inflation is the Bank of Canada’s job and that’s it,” he said. “Whereas we should be bringing a broader toolkit … to the problem, including measures the federal government itself should take, rather than saying it’s just up to the Bank of Canada.”
Monetary policy (interest rate hikes and bond purchases by the Bank of Canada) and fiscal policy (spending and taxation by various levels of government) are supposed to work hand in hand.
Stanford says this inflation crisis is different from those in the 1970s, ’80s and ’90s. The current episode was sparked by supply chain disruptions during COVID-19 lockdowns, Russia’s invasion of Ukraine and climate issues impacting global agriculture.
So policy-makers need to think differently, he says, noting the federal government should do something about the surge in corporate profits.
People walk through Toronto’s financial district, home to the country’s major banks, corporations and investment firms, in June 2022. Canada has seen a surge in corporate profits. (Evan Mitsui/CBC)
“We’ve seen Canadian corporate profits reach their highest level as a share of GDP ever, because in some sectors — not all, but some sectors — companies have taken advantage of this inflation to widen the profit margin,” he said.
Stanford says Australia and some European countries have capped energy prices that soared after Russia’s invasion of Ukraine in February 2022. Many Canadians may bristle at the notion of something like price caps. But he says this country already has some price controls on milk and dairy supplies. Why not on other products?
“The concept is not as far-fetched as you think — and international experience is suggesting that might have been a better way to approach the problem, rather than trying to slow down the whole economy with an interest rate hammer,” he said.
High food and housing costs
Armine Yalnizyan, an economist and Atkinson Fellow on the Future of Workers, says there are loads of small things that governments in Canada can do to help alleviate the pressures of the cost-of-living crisis without adding to inflation.
She says many households have struggled to keep up with the cost of food.
“In Canada, we are the only country in the advanced economic world to not have a school food program that is national,” she told the CBC podcast Front Burner.
LISTEN | Bank of Canada continues to increase interest rates to fight inflation:
23:46Has the Bank of Canada gone too far?
Yalnizyan says there are different food programs from province to province, but there is no single national program to help ensure that no child goes hungry.
“We’ve been expecting to see something happen since food prices took off, and so far, crickets. So that’s definitely something that could be done immediately,” she said.
Housing is also key.
Mike Moffatt, an economist and senior director at the University of Ottawa’s Smart Prosperity Institute, says there are a series of actions governments could take to help address housing affordability, including some immediate and simple ways to incentivize developers to build the right stock.
Real estate signs are shown in Mississauga, Ont., in May. Governments could take a number of actions to help address housing affordability in Canada, one economist says, including waiving the HST on purpose-built rentals and relaxing stringent zoning laws. (Nathan Denette/The Canadian Press)
Governments could waive the HST on purpose-built rentals, and cities could relax stringent zoning laws, Moffatt says.
Another solution to the housing crisis comes via immigration, he says: “How many electricians and plumbers are we going to bring in versus how many university professors?”
Moffatt, who is an assistant professor in business, economics and public policy at Western University’s Ivey Business School in London, Ont., says his father was a sheet metal worker.
“For the last 40 years, our immigration system is biased towards bringing in guys like me, and biased against bringing in guys like my dad. And we absolutely need to flip that,” he said.
If Canada wants to build enough housing stock, it needs to make sure it has the skilled labour to do that.
Moffatt says small changes on the margin can add up quickly to help in the fight against inflation. While he agrees that monetary and fiscal policy should work together, he says that’s not always as easy as it sounds.
“It’s always easier at the bottom of the business cycle,” he said.
Most people are familiar with that playbook. When the economy is in the ditch, central banks cut rates and governments boost spending. That creates demand and gets money flowing.
“The challenge is doing that in reverse,” Moffatt said, “where you’re basically asking the federal government to take money out of the economy.”
Ask any economist and they can rhyme off a laundry list of actions that federal, provincial and municipal governments could take to relieve some of the pressure.
“But we’re doing nothing,” Yalnizyan said. “It’s like that Simpsons episode, where the character says, ‘We’ve tried nothing and we’re all out of ideas.'”
OTTAWA – The New Democrats confirmed Thursday they won’t help Pierre Poilievre’s Conservatives topple the government next week, and intend to join the Bloc Québécois in blocking the Tories’ non-confidence motion.
The planned votes from the Bloc and the New Democrats eliminate the possibility of a snap election, buying the Liberals more time to govern after a raucous start to the fall sitting of Parliament.
Poilievre issued a challenge to NDP Leader Jagmeet Singh earlier this week when he announced he will put forward a motion that simply states that the House has no confidence in the government or the prime minister.
If it were to pass, it would likely mean Canadians would be heading to the polls, but Singh said Thursday he’s not going to let Poilievre tell him what to do.
Voting against the Conservative motion doesn’t mean the NDP support the Liberals, said Singh, who pulled out of his political pact with Prime Minister Justin Trudeau a few weeks ago.
“I stand by my words, Trudeau has let you down,” Singh said in the foyer outside of the House of Commons Thursday.
“Trudeau has let you down and does not deserve another chance.”
Canadians will have to make that choice at the ballot box, Singh said, but he will make a decision about whether to help trigger that election on a vote-by-vote basis in the House.
The Conservatives mocked the NDP during Question Period for saying they had “ripped up” the deal to support the Liberals, despite plans to vote to keep them in power.
Poilievre accused Singh of pretending to pull out of the deal to sway voters in a federal byelection in Winnipeg, where the NDP was defending its long-held seat against the Conservatives.
“Once the votes were counted, he betrayed them again. He’s a fake, a phoney and fraud. How can anyone ever believe what the sellout NDP leader says in the future?” Poilievre said during Question Period Thursday afternoon.
At some point after those comments, Singh stepped out from behind his desk in the House and a two-minute shouting match ensued between the two leaders and their MPs before the Speaker intervened.
Outside the House, Poilievre said he plans to put forward another non-confidence motion at the next opportunity.
“We want a carbon-tax election as soon as possible, so that we can axe Trudeau’s tax before he quadruples it to 61 cents a litre,” he said.
Liberal House leader Karina Gould says there is much work the government still needs to do, and that Singh has realized the consequences of potentially bringing down the government. She refused to take questions about whether her government will negotiate with opposition parties to ensure their support in future confidence motions.
Bloc Québécois Leader Yves-François Blanchet hasn’t ruled out voting no-confidence in the government the next time a motion is tabled.
“I never support Liberals. Help me God, I go against the Conservatives on a vote that is only about Pierre Poilievre and his huge ambition for himself,” Blanchet said Thursday.
“I support the interests of Quebecers, if those interests are also good for Canadians.”
A Bloc bill to increase pension cheques for seniors aged 65 to 74 is now at “the very centre of the survival of this government,” he said.
The Bloc needs a recommendation from a government minister to OK the cost and get the bill through the House.
The Bloc also wants to see more protections for supply management in the food sector in Canada and Quebec.
If the Liberals can’t deliver on those two things, they will fall, Blanchet said.
“This is what we call power,” he said.
Treasury Board President Anita Anand wouldn’t say whether the government would be willing to swallow the financial implications of the Bloc’s demands.
“We are focused at Treasury Board on ensuring prudent fiscal management,” she said Thursday.
“And at this time, our immediate focus is implementing the measures in budget 2024 that were announced earlier this year.”
This report by The Canadian Press was first published Sept. 19, 2024.
OTTAWA – Treasury Board President Anita Anand has been sworn in as federal transport minister at a ceremony at Rideau Hall, taking over a portfolio left vacant after Pablo Rodriguez resigned from cabinet and the Liberal caucus on Thursday.
Anand thanked Rodriguez for his contributions to the government and the country, saying she’s grateful for his guidance and friendship.
She sidestepped a question about the message it sends to have him leave the federal Liberal fold.
“That is a decision that he made independently, and I wish him well,” she said.
Prime Minister Justin Trudeau was not present for the swearing-in ceremony, nor were any other members of the Liberal government.
The shakeup in cabinet comes just days after the Liberals lost a key seat in a Montreal byelection to the Bloc Québécois and amid renewed calls for Prime Minister Justin Trudeau to step down and make way for a new leader.
Anand said she is not actively seeking leadership of the party, saying she is focused on her roles as minister and as MP.
“My view is that we are a team, and we are a team that has to keep delivering for our country,” she said.
The minority Liberal government is in a more challenging position in the House of Commons after the NDP ended a supply-and-confidence deal that provided parliamentary stability for more than two years.
Non-confidence votes are guaranteed to come from the Opposition Conservatives, who are eager to bring the government down.
On Thursday morning, Rodriguez made a symbolic walk over the Alexandra Bridge from Parliament Hill to Gatineau, Que., where he formally announced his plans to run for the Quebec Liberal party leadership.
He said he will now sit as an Independent member of Parliament, which will allow him to focus on his own priorities.
“I was defending the priorities of the government, and I did it in a very loyal way,” he said.
“It’s normal and it’s what I had to do. But now it’s more about my vision, the vision of the team that I’m building.”
Rodriguez said he will stay on as an MP until the Quebec Liberal leadership campaign officially launches in January.
He said that will “avoid a costly byelection a few weeks, or months, before a general election.”
The next federal election must be held by October 2025.
Conservative Leader Pierre Poilievre said he will try to topple the government sooner than that, beginning with a non-confidence motion that is set to be debated Sept. 24 and voted on Sept. 25.
Poilievre has called on the NDP and the Bloc Québécois to support him, but both Jagmeet Singh and Yves-François Blanchet have said they will not support the Conservatives.
Rodriguez said he doesn’t want a federal election right away and will vote against the non-confidence motion.
As for how he would vote on other matters before the House of Commons, “it would depend on the votes.”
Public Services and Procurement Minister Jean-Yves Duclos will become the government’s new Quebec lieutenant, a non-cabinet role Rodriguez held since 2019.
This report by The Canadian Press was first published Sept. 19, 2024.
— With files from Nojoud Al Mallees and Dylan Robertson
