Actions to mitigate the cost of living crisis will make the Bank of Canada’s job more difficult, analysts say


News analysis

As Canadians suffer from record gas and food cost increases, the Liberal government is under pressure from the Conservatives and the NDP to mitigate the cost of living crisis. However, analysts say that neither the proposals of these parties nor the actions of the government are anything but temporary measures that do not address the underlying problem. They added that the government’s belt tightening would help the Bank of Canada control red inflation.

Philip Cross, a former Chief Economic Analyst at Statistics Canada and Munk Senior Researcher at the McDonald’s Laurier Institute, said proposals from the opposition Conservatives and the NDP may be popular, but broader inflation. It does not improve the problem and may actually make it worse.

“It is not the price of crude oil that is pushing up gas prices. It is the lack of refining capacity. Therefore, what increases the demand for refined petroleum products, whether gas or not, only exacerbates the situation. [tax] Put more money in the pockets of people on holidays, “he told The Epoch Times.

What the Liberal Party says they did is pass Building C-8, Among other measures, provide tax exemption for teachers, farmers and people in the north. It was approved by the King on June 9. Treasury Minister Chrystia Freeland also advertised. Bill C-19A law to implement many of the government’s 2022 budget commitments.

As an example,”[Bill C-19] By shifting climate change incentive payments to quarterly payments, we will return money to Canadian pockets more regularly, “she said. May 31..

Whether it’s tax cuts, credit, or payments to people, Carlton University business professor Ian Lee focuses on 40 percent of Canada’s minimum income if the federal government does more. We suggest that the support should be income-based and targeted.

“People are suffering. It needs a targeted solution,” he told The Epoch Times.

However, Lee added that inflation worsened due to government spending when the economy was overheating, and the Conservative and New Democratic proposals were “band-aid solutions” that did not solve the underlying problem.

“So, maybe at the same time, they [the feds] Now that all jobs have recovered, we can say that we intend to reduce spending in other areas for all income support programs, “Lee said.

Central banks must combat many domestic and international factors that pull inflation away from the 2% target. Banks of Canada and other central banks have been erroneous in repeated forecasts and expectations, but are now taking decisive action to curb excess demand by rapidly raising interest rates.

“After all, it’s the Bank of Canada’s responsibility to curb inflation. It’s not the government’s. It’s not up to their fiscal policy, [though] Basically, fiscal policy can help with margins, “Cross said.

“If we continue to mail $ 500 checks to everyone and reduce Alberta’s gas prices to the extent we continue, it’s perfect to do your job at the Bank of Canada to further reduce demand. I’m going to say it’s up to you, “he added.

At least the Bank of Canada is aware of the problem and is doing something about it, Lee said, while the government continues to spend and makes the central bank’s job difficult.

“Currently the biggest problem is the fiscal policy aspect. In terms of monetary policy, they are finally on the right path, late but a year behind, yes, but at least they are on the right path. I have, “he said.

Popular but flawed

NDP leader Jagmate Singh said on June 10: “The New Democratic Party has stopped stalling the Liberal Party by doubling GST tax credits and increasing Canadian child allowances, and people from $ 500 to $ 1000 soon. I’m calling for you to put it in your pocket. “

Candice Bergen, the leader of the Interim Conservative Party, instead urges the government to suspend fuel GST, counter NDP, and increase child allowance payments to alleviate the living cost crisis. It states that it is not.

“We need to look at the government to admit that people don’t need checks from the government. They need tax cuts. The best way to provide relief to Canadians is to cut their taxes. “She said June 7..

According to Lee, another idea proposed by the NDP to help Canadians struggle is flawed.

“NDP is diligent by telling the government to stop protecting corporate profits and expand financial institutions’ excess profit taxes to include large oil and gas companies and record-breaking large companies. I’m asking the Canadians to redistribute the money. “ Shin Said on June 7th.

Lee says this only encourages investors to spend the dollar elsewhere, and Canada cannot get the capital it needs to strengthen and grow its economy.

“It’s a terrible idea because what we’re doing is saying that if you succeed, we’ll discriminate against you’s success,” he said.

“Companies are increasingly voting on their own to acquire capital and invest outside Canada.”

Is it a trench?

Deputy Governor of the Bank of Canada Paul Beaudry Said in June 2nd speech “International development has boosted inflation the most in the past year.” He said prices were further increased by the global recovery from a pandemic supply shortage of energy, electronics and consumer goods, and the war in Ukraine. I mentioned that it was soaring.

Beaudry’s view is Parliamentary Budget Officer“Supply or sector-specific issues are the main driver of high inflation,” said the June 7 Inflation Monitor Report. Fiscal observers elaborated that if inflation were to be more widespread, it would be consistent with stronger aggregate demand being its main driver.

Beaudry revealed that the BoC believes inflation has not yet taken hold.

“History shows that once high inflation takes hold, it’s difficult to get it back without seriously disrupting the economy,” he said.

However, Mr. Cross said inflation is approaching settlement and then it will be very difficult to maintain control. He explained that when inflation is reflected in wages, it will take hold.

“The sense of urgency seen in the labor market is beginning to appear in some indicators of wages …. not fully established.”

Average hourly wage According to Mr. Cross, it increased by 3.9% every year in the year to May. Canada added 40,000 jobs in May, unemployment hitting a record low of 5.1% Unfilled position Over 1 million.

“If we keep wages down, inflation could drop to the range of 4% to 5% early next year,” Cross said.

Ontario citizens can expect some relief from the pump from July 1st to December 31st. Gas and fuel tax It will be reduced by 5.7 cents per liter and 5.3 cents per liter.

The United States faces similar problems, Domestic Revenue Service We have raised the standard mileage rate for the second half of this year. These are used to calculate tax credits for using vehicles in business.

“There is no reason to think that our prices will always go down in the short term,” Cross said.

Rahul Vaidyanath


Rahul Vaidyanath is a journalist in The Epoch Times of Ottawa. His areas of expertise include economics, financial markets, China, and defense and security. He has worked at the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York and Los Angeles.