Finance Committee on April 30th, 2008

[Mark Carney]

It is an aspect of our reflection. You have outlined a very difficult specific case but, according to statistics, the new jobs that are being created will, on average, be better paid than those that have been lost in Canada. Of course, there will always be difficult cases such as the one you have just mentioned.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chairman, might I ask Mr. Carney to provide us with statistics showing that the jobs in the services sector that are replacing those in the manufacturing sector are better paid? I am most interested in the numbers.

[Mark Carney]

[Editor's Note: Inaudible] the services sector, but in general, yes.

[The Chair, Conservative, Rob Merrifield]

That's no problem. If you could give that to the clerk, we'll distribute it to all the committee.

[Mark Carney]

Absolutely.

[The Chair, Conservative, Rob Merrifield]

That is the way we would do it. Thank you very much.

Mr. McCallum, the floor is yours.

[John McCallum, Liberal, Markham—Unionville, ON]

How much time do I have?

[The Chair, Conservative, Rob Merrifield]

You have five minutes.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

I'd like to pursue the line of questioning from my colleague Mr. Pacetti. I may have missed it, but I didn't see any nominal GDP forecast or GDP deflator forecast. Do you have that?

[Mark Carney]

No, you did not miss it. We do not, Mr. McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

As I'm sure you will recognize, if we knew the nominal GDP forecast, as you said yourself, nominal GDP is the main thing driving tax revenues and therefore the likelihood of going into deficit, but you won't help us on the subject of the GDP deflator.

Perhaps I could ask you an indirect question. As I understand it, the GDP is the price of goods we produce versus the consumer price inflation, the price of goods we consume, so if energy prices and prices of things that we export go up, the GDP deflator, other things being equal, will be relatively high. What I do notice, though, is that you are forecasting declines in energy prices. That would certainly contribute to a lower GDP deflator, other things being equal, would it not? Would there not therefore be a greater likelihood of a deficit?

[Mark Carney]

There are two points. One is that we're not forecasting, but rather assuming, the futures curve that was there at the time for energy prices, which is about a 10% decline, as you note, over the course of the projection period. As well, we do make a forecast for non-energy commodities, which over the projection period is about a 15% gradual decline from the levels going in.

All other things being equal, those factors would lower the rate of growth of the GDP deflator.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay, it's not a forecast but your projection, but given the significant position of energy and the huge increases in energy prices, would that not have a fairly substantial slowing impact on GDP inflation relative to 2007, when we saw the huge spike up in energy costs?

[Paul Jenkins]

Let's go back to the basic question. The original question was around the sensitivity analysis that was presented in the budget documents. That sensitivity analysis is in terms of nominal GDP growth, and the question that was asked was in terms of our real growth and whether it could be 1% lower.

As the governor indicated, we view our projection of real GDP growth rate as being balanced, with both downside and upside risks. So the simple point is that you have to look at nominal GDP growth from the point of view of the implication for revenues.

[John McCallum, Liberal, Markham—Unionville, ON]

Yes, but that's not what I'm asking you. I understand that. I'm trying to infer from what you are saying the likelihood of the GDP price deflator going up quickly or slowly. My point is that if we shift from a 2007 huge jump in energy prices to being very flat or falling, then that should lead to a decline in GDP price inflation.

[Mark Carney]

Yes, but first of all, we're giving it over that two-year horizon, so we're not giving a point estimate for the fiscal year that you're referring to. Secondly, energy prices and commodity prices, as everyone's aware, have rallied very strongly in the first quarter of this year, so we're talking about off those levels, where we set the projection, and this document.

[John McCallum, Liberal, Markham—Unionville, ON]

My final question is still on commodity prices but specifically on food prices. There's been a lot of talk about food prices globally and in Canada. Traditionally food and energy prices have had a major bearing on Canadian inflation over the past years, and there's also of course a big concern in terms of poverty and even starvation around the world.

Do you have any comment on how you see food prices evolving?

[Mark Carney]

I'd make a couple of comments.

Canada is in a relatively unique position at the moment with this issue in that there are certainly individual items that have moved but food price inflation as a whole has been very muted in Canada. That's a product of a couple of things, we think. First, there's a surplus of meat in North America, so meat prices have gone down. Secondly, there has been some exchange rate pass-through from the past appreciation of the Canadian dollar affecting particularly meat prices, fish prices, fruit and vegetable prices in Canada. Thirdly, we have seen increased competitive pressure in the food retailing sector. Some of the big box retailers have moved in. Margins have gone down, and that process has gone through.

So in Canada to this point we have not seen those issues, but we certainly are attentive to what's going on globally, and attentive as well to the implications for inflation and expectations.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I know, Mr. McCallum, you wanted to leave some time for Mr. Pacetti, but you just gobbled his time, and we'll now move to Mr. Crête.

[John McCallum, Liberal, Markham—Unionville, ON]

I was just following up on this.

[The Chair, Conservative, Rob Merrifield]

Okay.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

Do you have statistics for the inflation rate in Western Canada, Quebec, Ontario and the Maritimes? Could you provide us with data that would give us an order of magnitude?

[Paul Jenkins]

Yes, there is a difference. If I remember correctly, the rate of increase for the CPI in Western Canada was of between 3 and 3.5%, because of the robust housing price increase, which is included in the CPI. In Ontario and Quebec, the CPI rate of increase — I could get my hands on the exact numbers and prepare a graph — would be closer to 1.5%.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

If I understand correctly, if we were today to establish an interest rate solely for the Quebec and Ontario economies, it would be different from that for the West.

Would you agree with me?

[Mark Carney]

Yes, if it were possible.