Canadian Fiscal Policymakers “Do Nothing Important” to Delay Inflation: Scotiabank


Curbing government spending could help banks in combat rising inflation, lower interest rates, shift the burden of adjustments from the private sector, and split more equitably between the public and private sectors. Said Scotiabank.

In report Jean-François Perrault, chief economist at Scotiabank and Réne Lalonde, modeling director, announced on June 19, said that inflation was primarily driven by government fiscal policy aimed at protecting the economy from COVID. Said that the central bank has all the responsibility to curb high inflation. 19 pandemics, retreat from the war between Russia and Ukraine, and other inflationary factors.

“Currently, the Bank of Canada is responsible for reducing very high inflation in its own right, even though much of the increase in inflation has been revealed as the pandemic is due to Canada’s (and elsewhere) fiscal policy. I owe it. [in the world]It was designed to protect businesses and households from the economic consequences of a pandemic, “the report said.

“It is no exaggeration to say that Canada’s fiscal policymakers have no importance at this point in delaying inflation.”

The author is of the Bank of Canada Renewed financial obligations From December 2021, it was stated that the fight against inflation was a “joint responsibility” between banks and the federal government.

“The Bank of Canada should not fight inflation on its own, despite its explicit obligation to control inflation,” they said. “Better coordination of Canada’s monetary and fiscal policies could have less impact on the private sector and help restore inflation to its goals.”

The report came out last week when the Federal Reserve raised key interest rates by three-quarters of a percentage point. This is a move that economists say is likely to be reflected by the Bank of Canada. On June 1, the BoC raised the policy rate from 1% to 1.5% by 50 basis points.

The Bank of Canada currently expects a cumulative increase in real government consumption of 4.8% by 2024 and will continue to raise the policy rate to 3% by the end of 2022, according to a report by Scotiabank. In contrast, a more modest cumulative increase of 2.5% of actual government spending by 2024 will allow central banks to end the tightening cycle with a policy rate of 2.25%, the authors said.

Reducing government spending can also shift the burden of disproportionate policy adjustments to the private sector.

“In effect, high levels of fiscal spending require congestion from personal spending. Less supportive fiscal policies will remove some adjustment burden from the private sector, but much more directly to inflation. It will have a positive impact, “the report said.

“By doing so, the Bank of Canada and other central banks will be more equitably divided between the private and public sectors from those that reduce the total amount of rate hikes required and wholly bear the burden of adjustments. You can shift to something. Sector. It is clear that a more collaborative approach to managing inflation shocks is needed and desirable. “

The authors have taken steps to help some states offset some of the high inflationary financial pressures on households, but those measures actually put further upward pressure on inflation. Said.

They also noted the political difficulty of identifying areas where governments would reduce spending, especially if certain spending was beneficial to economic growth.

“We do not advocate a shifting cultivation approach, but we do advocate a cautious and targeted reduction in spending,” the author said.

“The simple reality is that businesses and households are making trade-offs because they are incorporating higher inflation and funding costs into their budgets. It seems unreasonable for the government not to do the same. It seems, and doing so reduces the adjustments needed by the private sector. “

Andrew Chen


Andrew Chen is a Toronto-based Epoch Times reporter.