Evidence of meeting #112 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was spending.
A video is available from Parliament.
Governor, Bank of Canada
The way to do that is to get inflation down. That's our beacon and that's been our focus. All of our actions have been taken towards that goal.
With respect to financial stability issues, we are fortunate in this country. We have a strong, well-regulated banking sector—
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
I have just three minutes. I appreciate the answer and I agree with you that inflation needs to come down.
According to what you said about government spending adding more demand, in this environment where spending needs to be moderated and inflation needs to come down, what the government spending is doing is not helpful to you. What would be helpful to you, looking at the government today, in order for us to avoid this mortgage default crisis?
Governor, Bank of Canada
Governors don't usually give the government advice on what to do with fiscal policy—
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
You did say that government spending is not helpful to you, so in that context—
Governor, Bank of Canada
For all levels of government, looking forward, and given that inflation continues to be above its target, I think more focus by governments on the inflationary consequences of their spending decisions would be helpful, and more focus on government policies that add to supply and not only to demand would be helpful.
Conservative
Jasraj Singh Hallan Conservative Calgary Forest Lawn, AB
That would help us avoid the mortgage default crisis.
Governor, Bank of Canada
That would help us get inflation down, and when inflation comes down, interest rates can come down—
Conservative
Governor, Bank of Canada
—and that will help relieve some of the risks there as well.
Liberal
Patrick Weiler Liberal West Vancouver—Sunshine Coast—Sea to Sky Country, BC
Thank you, Mr. Chair.
Thank you, Mr. Macklem and Ms. Rogers, for being here today and for answering questions.
You mentioned that in the monetary policy reports, the outlook for consumer price index inflation through to the end of 2024 has been revised up and that about half of this revision reflects the assumption of higher oil prices. I wonder if you can explain to this committee what type of an impact you would see happening if we reduced our reliance on fossil fuels and the impact that would have on inflation.
Governor, Bank of Canada
That is a really complicated question, and I wish I could give you a satisfactory answer.
All I can tell you is that we are starting to examine the macroeconomic implications of climate change. We have done a fair amount of work looking at the financial stability risks posed by climate change. That work is well advanced, and we're now trying to build economic models to start to get a sense of the consequences. It is a very complicated question.
Also, different countries have taken very different policy responses, and those also have different implications for the economy. I'm afraid to say.... We're looking at this and many others are looking at this, and I can't give you an answer at this point.
Liberal
Patrick Weiler Liberal West Vancouver—Sunshine Coast—Sea to Sky Country, BC
Thank you.
Mr. Blaikie had a few questions on this point earlier: In your testimony last week, in the press conference for the updated monetary policy report, you mentioned that corporate pricing is not normal right now and you mentioned some of the factors that are leading to that in an inflationary environment. I wonder if you could put a measure on what type of a contribution you see this abnormal corporate pricing behaviour having on inflation in Canada right now.
Governor, Bank of Canada
I don't think we can put a number on it, but what we can say with some confidence is that when inflation was low and stable.... We have had big shocks to input prices and we've had big fluctuations in energy prices in the last 25 years, and what we saw when those things happened was that businesses were pretty cautious about passing on the higher energy price into the prices they charged, not for gasoline, but for other goods and services. When we would ask them about that, they'd say “Oh, yeah, we can't just pass these on or we're going to lose customers, and we don't want to lose customers.”
When inflation went way up lately, though, what we started to hear from businesses was, “Oh, it's much easier to pass on these price increases.” That's exactly what you see in the data. When input prices went up—the cost of energy, for example—those increases were passed through much more quickly into the final prices of goods. Households are bearing the full inflationary impact much more quickly. That's what we can see pretty clearly in the data.
Liberal
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
Governor, we know that HSBC Bank Canada wants to sell its assets in a number of territories, including Canada. Thus far, the Royal Bank of Canada appears to have expressed an interest.
Is the Office of the Superintendent of Financial Institutions, or OSFI, really the only institution evaluating that? Has the Bank of Canada also evaluated the impact that potential transaction would have on the Canadian economy?
Governor, Bank of Canada
The Bank of Canada doesn't evaluate those transactions. That's really up to OSFI, as you say, and the Competition Bureau.
Gabriel Ste-Marie Bloc Joliette, QC
All right. Thank you.
Now moving on to another topic, with regard to the need for developing countries to adopt more resilient infrastructure in order to mitigate and adapt to climate change, Joseph Stiglitz, the American economist, suggested quite an original approach a few days ago. I'd like to hear your thoughts on the subject.
The International Monetary Fund, the IMF, issues special drawing rights. It's mainly the rich countries that have them and use them. According to Mr. Stiglitz, if I'm accurately summarizing his comments, those countries don't really need them. He therefore suggests that developing countries be allowed to use the rights as grants or low‑ or no‑interest loans for climate investment purposes. Rich countries would have to agree to the idea.
Do you have an opinion on the subject? Do you think it's a promising potential solution for developing countries?
Governor, Bank of Canada
That really has nothing to do with monetary policy, and I don't have an opinion on it. You should put the question to the IMF.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
All right. I was wondering if the Bank of Canada was looking into it since it touches on certain monetary aspects. So I'll ask a third question.
I want to go back to the article by Mohamed El‑Erian.
According to him, “the global economy and key financial markets like the one for benchmark U.S. government bonds now lack key top-down anchors such as growth momentum, confidence in policymaking signals, and stabilizing financial flows.”
Are we seeing this in the Canadian economy as well? What are your comments?
Governor, Bank of Canada
Would you please repeat the question? I didn't really understand it.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Of course.
According to Mr. El‑Erian, “the global economy and key financial markets like the one for benchmark U.S. government bonds now lack key top-down anchors such as growth momentum, confidence in policymaking signals, and stabilizing financial flows.”
Governor, Bank of Canada
Canada's fiscal situation enjoys a major advantage over that of other G7 countries. Germany and Canada are the only ones with an AAA credit rating, and we must protect that. It's an advantage for Canada in that it lowers long-term interest rates for governments, businesses and households. It also encourages investment, and that's good for our potential GDP growth rate.
Some countries elsewhere in the world clearly face bigger problems. Sovereign debt attracts a certain degree of international risk.
