Finance Committee on Jan. 17th, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 12 of the House of Commons Standing Committee on Finance. Pursuant to a motion adopted in committee on January 12, 2022, this committee meeting is on inflation in the current Canadian economy.

Today's meeting is taking place in a hybrid format, pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. The proceedings will be made available via the House of Commons website. So you are aware, the webcast will always show the person speaking, rather than the entirety of the committee.

Today's meeting is also taking place in a webinar format. Webinars are for public committee meetings and are available only to members, their staff and witnesses. Members enter immediately as active participants. All functionalities for active participants remain the same. Staff will be non-active participants and can therefore only view the meeting in gallery view.

I'd like to take this opportunity to remind all participants to this meeting that screenshots or taking photos of your screen is not permitted.

Given the ongoing pandemic situation and in light of the recommendations from health authorities, as well as the directive of the Board of Internal Economy of October 19, 2021, to remain healthy and safe, all those attending the meeting in person are to maintain a two-metre physical distancing and must wear a non-medical mask when circulating in the room. It is highly recommended that the mask be worn at all times, including when seated. Participants must maintain proper hand hygiene by using the provided hand sanitizer at the room entrance. As the chair, I'll be enforcing these measures—through the clerk, as he is in the room—for the duration of the meeting. I thank members in advance for their co-operation.

To ensure an orderly meeting, I'd like to outline a few rules to follow.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of floor, English or French. If interpretation is lost, please inform me immediately, and we will ensure interpretation is properly restored before resuming the proceedings. The “raise hand” feature at the bottom of the screen can be used at any time if you wish to speak or alert the chair.

For members participating in person, proceed as you usually would when the whole committee is meeting in person in the committee room, keeping in mind the Board of Internal Economy's guidelines for mask use and health protocols.

Before speaking, please wait until I recognize you by name. If you are on the video conference, please click on the microphone icon to unmute yourself. For those in the room, your microphone will be controlled as normal by the proceedings and verification officer. When speaking, please speak slowly and clearly. When you're not speaking, your mike should be on mute. I remind you that all comments by members and witnesses should be addressed through the chair.

With regard to a speaking list, the committee clerk and I will do our best to maintain a consolidated order of speaking for all members, whether they are participating virtually or in person.

The committee agreed that, during these hearings, the chair will enforce the rule that the witness's response to a question take no longer than the time taken to ask the question. That being said, I request that members and witnesses treat each other with mutual respect and decorum. If you think the witness has gone beyond the time, it is the member's prerogative to interrupt or ask the next question. To be mindful of other members' time allocation during the meeting, I also request that members stay within a half a minute or so for the duration of their allotted question time. Though we will not interrupt anyone during a member's allotted time, I'd like to keep you informed that our clerk has two clocks to time members and witnesses.

I'd now like to welcome the witnesses from Statistics Canada.

We have Mr. Anil Arora, the chief statistician of Canada. We have Mr. Greg Peterson, the assistant chief statistician from economic statistics. We have Ms. Heidi Ertl, director of the consumer prices division. Welcome.

You will have five minutes for your opening statement or remarks before we get into questions from members.

The floor is yours.

[Anil Arora, Chief Statistician of Canada, Statistics Canada]

Good afternoon, Mr. Chair and members of the finance committee. I'm pleased to be here with Mr. Peterson and Ms. Ertl today.

Canada and the world are continuing to respond to the COVID‑19 pandemic, and the role of Statistics Canada and evidence-based information is more important than ever to support Canadians.

We take our responsibility of providing high-quality data and insights to policy-makers and decision-makers very seriously. Despite the challenges of direct collection with households and businesses, we have never provided more timely, detailed or integrated statistics.

The CPI, or consumer price index, one of the most important and impactful indicators, continues to be a reliable and robust mechanism to convey the impact of the pandemic on consumer inflation and our changing consumption patterns. We’ve all noticed that gas prices initially plunged and subsequently surged, rising 43.6% compared with November 2020. Our food costs are 4.4% higher. Every trip to the grocery store reminds us of the impacts of weather events and supply disruptions, as consumer prices adjust to higher shipping costs, higher input costs and, generally, people eating at home instead of at restaurants. New home prices and resale prices are both up significantly year over year.

Inflation, or the rate at which prices change over time, is not always easy to measure or interpret, but we all notice it and the CPI is key to understanding it. Employers use the CPI to make cost-of-living adjustments in wages and salaries, and governments use it to adjust income taxes and such social benefits as the CPP and old age security.

The CPI is an essential tool for setting and evaluating economic policies, particularly for the Bank of Canada. It has been used to monitor Canada's economy since it was created in 1914.

Aligning with the concepts and standards set by international bodies, the CPI is an extremely robust statistical indicator that's reviewed and enhanced regularly under the guidance of experts at Statistics Canada's prices division. From widespread global supply chain constraints to shifting and pent-up consumer demand and being able to shop, dine and travel more last year than in 2020—all of it impacted our inflation rate, which reached 4.7% in November of 2021.

As part of the broader trend during the pandemic, Canadian consumers sought to improve their immediate surroundings with such items as furniture, appliances and passenger vehicles, which were impacted by higher demand as well as global shortages of semiconductor chips. More living space and outdoor amenities also became popular, which, coupled with historically low interest rates and higher building costs, pushed the costs of home ownership higher in Canada.

The CPI captures these changes from month to month to measure changes in the average prices for Canadian consumers based on the cost of a fixed basket of goods and services.

Imagine a shopping basket that is filled with the same quantity of the same products every month. The products in the basket include groceries, electricity and water rates, haircuts, and so on. Monitoring the cost of these products over time measures the pure price change.

Society and Canadians' purchasing patterns change over time and so does our basket. For example, instead of including the price of a record player or eight-track, today's basket includes items such as smart phones and computers.

In an effort to improve and identify changing spending patterns faster in response to the pandemic, we moved the annual updates to the basket weights. Grocery prices are now mostly collected using point-of-sale data, the data that are generated when the item is scanned, drawing directly on Canadians' transactions at the store. This is the highest-quality data available and ensures that the prices collected are what we actually pay in a given month, including sales and specials.

We've added such new tools as the personal inflation calculator, partnered to develop complementary products, conducted seminars and workshops, and enriched our outputs with greater analysis. We continue to experiment, enhance and support our collective understanding so that the CPI and other measures can stimulate good debate and ultimately allow good decisions, which impact us all.

My colleagues and I would be glad to take any questions.

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Arora. You are right on time.

Thank you to your members for being with us today.

We will move to our first round of questions. Each party will have six minutes to ask questions of our chief statistician and his colleagues.

We will start with the Conservatives.

Mr. Poilievre, you are up for six minutes.

[Pierre Poilievre, Conservative, Carleton, ON]

Yes, Mr. Chief Statistician, the last time I saw you, you were having a CPI-adjusted breakfast over at the local diner in Manotick. It was great to see you in person then, and I hope that I will see you again in person soon. Thank you for being here today.

When Justin Trudeau took power, the typical home cost $434,500. Now it's $811,700, according to the MLS housing price index of the Canadian Real Estate Association. That's over 85% inflation in six years. Last year, home inflation hit over 25%, which the real estate association's chief economist called the “biggest gain of all time”. That followed the $400 billion of newly created cash that the government pumped into financial markets, much of it lent out in risky variable mortgages at interest rates well above inflation. These negative real rates literally pay people to borrow and bid up prices.

Housing inflation is homegrown, Mr. Chief Statistician. Bloomberg reports Canada has the second most inflated housing bubble in the world. The average family must spend two-thirds of their gross income on monthly payments for the average home in Toronto or Vancouver, which Demographia calculates are respectively the world's fifth and second most unaffordable markets. Banking rules, mortgage insurance, monetary policy, money laundering are all federal. So is housing inflation, here and now under this government. That is Justinflation.

How are you, over at Statistics Canada, including real estate costs in your CPI? Of course, you don't use real estate prices as part of the consumer price index basket. Rather, you use “shelter”, which is itself a bundle of different measures, including interest costs—which, as I mentioned earlier, are artificially suppressed—energy costs, utilities, insurance and so on. How do you capture within that “shelter” subset the extraordinary rise in year over year house prices?

Anyone can take that question.

[Anil Arora]

Thank you very much, and it's a pleasure to see you again virtually.

First of all, there's no question that, in a number of our indicators, we're seeing the new housing price index showing us almost a 12% year-over-year gain. You're starting to [Technical difficulty—Editor] also show a 17.7% increase year over year, so there's no question that the house prices are, in fact, increasing. We take a set of comparable types of [Technical difficulty—Editor] areas and then adjust it for the size and so on, and then we measure the change over time.

As you mentioned, in the CPI itself, a dwelling—a shelter—is considered an asset. It is something that you purchase once, like a—

[Pierre Poilievre, Conservative, Carleton, ON]

Where would the price be factored in? Which subcomponent is it? Is it in the homeowners' replacement cost?

[Anil Arora]

There is a shelter cost—

[Pierre Poilievre, Conservative, Carleton, ON]

I got that, as I mentioned at the outset. What is the subcomponent?

[Anil Arora]

—of which homeowners' replacement cost makes up 5.6% of the weight, if you like, of that.

[Pierre Poilievre, Conservative, Carleton, ON]

Is that what changed by 12% year over year?

[Anil Arora]

You're seeing home ownership change year over year by 13.5%. The homeowners' replacement cost would be a subcomponent of the housing cost—

[Pierre Poilievre, Conservative, Carleton, ON]

That's right, but it's interesting, because the CREA calculates about twice the house inflation that you do. They have it around 25% or 26%. You have it at 12% or 13%. I've looked into why there's this discrepancy and who is right, and I have to say, with respect, that it doesn't look to me like Statistics Canada has this right.

Let me give you an example. According to the Statistics Canada housing price index, which is used for the homeowners' replacement cost, Vancouver has only seen a 25% increase in house prices since 2008. The MLS home price index and the Teranet home price index, two of the most respected in the world, say that it's closer to 120% in Vancouver. If you walk around the streets of Vancouver and tell people house prices are only up 25% in Vancouver since 2008, Mr. Chief Statistician, I think they would laugh you out of the city.

Can you explain why your measurement of house prices is so far off the other world-renowned measurements that are out there?

[Anil Arora]

Our methodology's been around for a few decades now. We take a set of types of dwellings—single, multi, etc.—in the various geographies in the country, and then we measure that over time. That's how we get at the new house pricing index.

Again, as I mentioned, in the CPI, we consider home ownership an asset that, if you like, you gain over time. You do factor in interest rate costs, utility costs, and maintenance and insurance costs. That's how we measure, in the CPI, a good that represents the overall shelter cost, of which homeowners' replacement is a subset that is weighted to what Canadians spend overall in a given basket.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we'll move to the Liberals for six minutes.

Ms. Dzerowicz.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank you, Mr. Arora, for your presentation. I want to thank your team for coming on such short notice. I want to thank you and your team for the important contribution and role that you play in our country, particularly right now, when we really need our data.

Because we're just starting this very important study on inflation, I want to provide some context about where we are right now. I'm going to quote a little bit of what I read in the Globe just two weekends ago. It was quoting Professor Adam Tooze from Columbia University, who wrote a book called Shutdown. He said that the first half of 2020 was historic. He said that 95% of the world's economies suffered a simultaneous contraction. That had never happened before. Three billion adults were furloughed from their jobs, or tried to work from home. That hadn't happened either. More than a billion and a half young people had their schooling interrupted. That's still happening. The sum of lost earnings, just in the first months of the pandemic, was $10 trillion U.S., more than a 10th of the global GDP.

However, in Canada, and in many places in the world, the economy has come back. Unemployment is now at around 5.9% versus 13%, which was at the start of the pandemic. GDP is back to where it was. The S&P 500 index is twice as high as it was in March 2020. Household wealth in Canada has risen by a full quarter above prepandemic levels. The average Canadian household added $5,000 to its savings account. The economy's recovering in many ways, much quicker than we thought.

I think the other point that's really important to make is that, in the U.S., only a small portion of its emergency dollars has actually gone to households. Professor Tooze has actually lauded Canada. He said our more generous payouts to the middle class have been an “underrated innovation in the history of the welfare state.”

My first question to you, Mr. Arora, is the following. There's a narrative that the ultrarich are seeing their wealth grow and all other Canadians are facing increased hardship following the pandemic. In your year-end update, you noted lower-wealth households and young families have seen disproportionately large increases in their income and wealth. Can you tell us more about this?

[Anil Arora]

Thank you for your question.

We do a distributed household economic account. I think the reference there is to what has been the change by quintile. We do see a disproportionate increase in the disposable income and the overall wealth of lower-quintile households. We see about 85% of the wealth going to the two lowest quintiles.

One has to keep in mind the absolute numbers. The highest quintiles have a more significant overall number in the amount that they have. However, we did see, throughout the pandemic, largely through increased savings because they're not spending as much and of course transfers, a higher, disproportionate amount go to the lower two income quintiles.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you.

Do you have any data that shows what could have happened if the federal government had not taken strong action to combat the COVID crisis?

[Anil Arora]

No, not directly. I think we can discount the transfers to various income quintiles and the data show that, even without the payments, there would have been a slight increase, but clearly the payments that were made increased the overall wealth and the disposable income of the lower quintiles, more disproportionately than at other levels. We also saw a slight increase in the higher quintiles as well, but in percentage terms, it was much lower than what we saw in the lower two quintiles.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Arora.

I was shovelling my walk this morning—it took a really long time, just to let you know—and my neighbour asked me, “What do you do again?" I told him that I was going to be on the finance committee and we were going to talk about inflation. He said, “Make sure to talk about housing. The prices are too high.” So on behalf of my neighbour and I think many Canadians, I will ask you about housing. I think Mr. Poilievre also started off on this.

We as the federal government, since we came in in late 2015, have been spending an exorbitant amount of money on really making housing a priority. We introduced a national housing strategy. Is it too soon to see the impact of our spending on home prices and the availability of housing? That's my first question.

Then there's the fact that many people use housing as an investment, or actually as a pension. Is that in any way somehow incorporated into or reflected in the numbers that you present in your year-end report?

[Anil Arora]

Thanks again.

With regard to your first question, I think I would let the policy-makers who are going to come after speculate as to whether or not it's too soon. At Statistics Canada we try not to get into that kind of forecasting.

In terms of a household, and the house itself as an investment, absolutely. There is no question about it. That's why you see some of the accounts we've put out, which show that the wealth actually has increased because the value of the house has obviously gone up. In many cases, the mortgage costs have come down overall, 8.5% year over year.

You are seeing...and of course, those that—

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Arora.

[Anil Arora]

Of course. Thank you.

[The Chair, Liberal, Peter Fonseca]

We will move to the Bloc with Mr. Ste-Marie for six minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

It is my turn to say hello to you, Mr. Arora, Ms. Ertl and Mr. Peterson. Thank you very much for taking the time to come and answer our questions this afternoon and for the work that you do. I commend the entire Statistics Canada team. Having good quality data is the foundation for developing public policy.

I believe that Mr. Arora would be the best placed to answer my first question, but if not then anyone who is able to answer it can do so.

Can you confirm that next Wednesday is when you will be publishing the most recent statistics on inflation?

[Anil Arora]

Yes.