Finance Committee on Oct. 30th, 2023

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 112 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motions adopted by the committee on Thursday, September 21, 2023, as well as Monday, November 21, 2022, the committee is meeting to discuss the report of the Bank of Canada on monetary policy and resuming its study of policy decisions and market forces that have led to increases in the cost of buying or renting a home in Canada.

Today's meeting is taking place in a hybrid format pursuant to the Standing Orders. Members are attending in person in the room and remotely by using the Zoom application.

I would like to make a few comments for the benefit of witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking.

For interpretation for those on Zoom, you have the choice at the bottom of your screen of either floor, English or French. For those in the room, you can use the earpiece and select the desired channel.

Although this room is equipped with powerful audio systems, feedback events occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to the microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on.

In order to prevent incidents and safeguard the hearing health of the interpreters, I invite participants to ensure they speak into the microphone into which their headset is plugged in and to avoid manipulating the earbuds by placing them on the table, away from the microphone, when they are not in use.

I will remind you that all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

With us today, we have, from the Bank of Canada, the governor.

Welcome, Governor Tiff Macklem.

Joining the governor is Senior Deputy Governor Carolyn Rogers.

You now have an opportunity to address us with some opening remarks before we get to the members' questions. We'll go for about an hour and 20 minutes, and then we will have a health break as we transition into that last hour.

[Tiff Macklem, Governor, Bank of Canada]

Thank you and good afternoon. I'm very pleased to be here with Senior Deputy Governor Carolyn Rogers to discuss our recent monetary policy report and our decision last week.

Last week, we maintained our policy interest rate at 5%. We held our policy rate steady because monetary policy is working to cool the economy and relieve price pressures, and we want to give it time to do its job, but further easing in inflation is likely to be slow and inflationary risks have increased.

Before I take your questions, let me give you some of the economic and financial context for that decision.

Since the last time we were here with you, the Canadian economy has slowed, and the available data suggest demand and supply are now approaching balance.

We're now seeing clearer evidence that higher interest rates are moderating spending and relieving price pressures. The economy has entered a period of weaker growth, with growth averaging about 1% over the last year. It is forecast to remain below 1% until late 2024 and rise to 2.5% in 2025.

The economy is expected to move into excess supply this year and growth should remain weak for the next few quarters. Consequently, inflation should continue to ease gradually and return to our 2% target in 2025. However, higher energy prices and persistence in underlying inflation could slow progress.

The effects of higher interest rates on inflation are most evident in the prices of durable goods, like furniture and appliances that people often buy on credit. These effects have also spread to many semi-durable goods, such as clothing and footwear, as well as many services excluding shelter.

Inflation in these categories is now running generally at or below 2%. Price increases for groceries, while still elevated at almost 6%, have also eased and are expected to moderate further.

A number of factors are getting in the way of low inflation. For example, higher global energy prices are increasing prices at the pump. And that is pushing inflation, as measured by the consumer price index, the CPI, back up.

Structural supply shortages in our housing market are boosting prices for shelter. In addition, near-term inflation expectations and wage growth remain elevated, and corporate pricing behaviour is normalizing only slowly.

Since we're going to be discussing housing in more depth today, let me provide some additional detail now. The rise in interest rates has cooled demand for housing. Since February 2022, housing resales have declined by 33% and house prices are down about 10%. But shelter price inflation has picked up and is running above 6%. Structural pressures in the housing market are slowing the return of inflation to target. Shelter price inflation has become more broad-based, with rent and other accommodation expenses increasing, in addition to the ongoing rise in mortgage interest costs, which is related to our own policy rate increases. We look forward to discussing these housing dynamics with you in more depth.

The combined effect of all these pressures on inflation is that we now expect inflation to be about 3.5% through to the middle of next year. As excess supply in the economy increases, inflation should ease in 2024 and reach 2% in 2025.

Overall, inflationary risks have increased since July. The forecast we released last week has inflation on a higher path than we expected last summer. In addition, rising global tensions, particularly the war in Israel and Gaza, have increased the risk that energy prices could move higher and supply chains could be disrupted again, pushing inflation up around the world.

With clearer evidence that monetary policy is working, my colleagues and I on the bank's governing council judged last week that we could be patient and hold the policy rate at 5%. However, to be confident that our policy rate is high enough to get inflation back to 2%, we need to see more easing in our measures of core inflation. We will continue to assess whether monetary policy is sufficiently restrictive to restore price stability and we will monitor risks closely.

Our decision last week reflected our best efforts to balance the risks of over- and under-tightening. We don't want to cool the economy more than necessary, but we don't want Canadians to have to continue to live with elevated inflation either, and we cannot let high inflation become entrenched in the economy. If inflationary pressures persist, we are prepared to raise our policy rate further to restore price stability.

In summary, we've made a lot of progress in reducing inflation, but we're not there yet, and we need to stay the course. When price stability is restored, the economy will work better for everyone.

With that, the senior deputy governor and I will be very pleased to take your questions.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Governor and senior deputy governor.

We will get right into questions. In our first round, each party will have up to six minutes to ask questions.

MP Hallan, you have six minutes, please.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Thanks, Chair.

Chair, can my time be paused? I want to put a motion on notice.

[The Chair, Liberal, Peter Fonseca]

All right. We've paused the time.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Colleagues, the finance minister has appeared exactly zero times to this committee on a motion I passed last November for her to appear at this committee quarterly until inflation comes down to the target rate.

Given that, I want to give this notice of motion:

That the committee report to the House its censure of the Deputy Prime Minister and Minister of Finance for ignoring the committee’s requests for her to appear on the cost‐of‐living crisis.

Thank you, Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Before I get started with my questions, Governor, I'd like to make a request to you to please table to the committee the number of mortgages that will be rolling over from October of this year until the end of 2025, broken down by month.

Can I get a confirmation on that, please?

[Tiff Macklem]

I don't have that number in front of me.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Can you table it to the committee?

[Tiff Macklem]

We do know the number of mortgages at federally regulated financial institutions. We could provide that information to the committee. That would be the majority—

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

It would be broken down by month, the ones that are rolling over.

[Tiff Macklem]

We'll do our best to get the information you're asking for.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Okay.

Governor, you said last week at your presser that “government spending will be adding to demand more than [to] supply [in] growing and in an environment where [we are] trying to moderate spending and get inflation down, that's not helpful”. Would it be easier if government didn't add any new spending in the fall economic statement or next year's budget? Would that be helpful?

[Tiff Macklem]

Let me make some general comments here on fiscal policy.

Any standard economic textbook will tell you that if you cut government spending, that will tend to slow growth, raise the unemployment rate and reduce inflation. Similarly, if you increase taxes, it would do the same thing.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Then in the context of your own words about government spending—these were your words—would it be helpful if....

Let me ask you this: Why is it not helpful to you?

[Tiff Macklem]

It would be helpful if monetary policy and fiscal policy were rowing in the same direction.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Are they rowing in opposite directions right now?

[Tiff Macklem]

If you look at what we've seen over the last year—there are different ways to measure it—one way to do this would be—

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Are they rowing in opposite directions? Just give a yes or no.

[Tiff Macklem]

Over the last year, no. Over the next year, certainly if the spending plans of all levels of government were to be realized, government spending, by our estimates, will be growing faster than supply. In that sense—

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

So they're rowing in opposite directions.

[Tiff Macklem]

—that would not be helpful in getting inflation down to target.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Are they rowing in opposite directions, yes or no?

[Tiff Macklem]

Yes.