Evidence of meeting #24 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was rate.
A video is available from Parliament.
4:45 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
It's about ready to go up, but if you look at the cost of petroleum today to fill up your gas tank, to heat your home or, in farmers' cases, keep their livestock warm, it can equate to far more than 0.1%, I can assure you. According to Saskatchewan agricultural producers, it was costing their farmers, on average, an additional 10%.
If you look at the cost of gasoline at the pump, it's 10%, sir. Excuse me if I question your numbers.
4:45 p.m.
Governor, Bank of Canada
The 0.1% is the impact of increasing the carbon tax over time. Obviously, if you eliminate it, yes, that would have a bigger effect.
4:45 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
What I was talking about was giving Canadians a holiday—not on the increase, but a holiday from the carbon tax.
4:45 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
If you said that a 10% reduction in the cost of fuel would have an impact on inflation, and the carbon tax equates to about a 10% cost, it only makes sense. If a equals b and a equals c, it makes sense. Could we have those numbers? Could we have the impact of the carbon tax—in total, not the increase—on inflation?
4:45 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you for that, Governor.
The other thing that I found a bit odd was that on one hand, you talked about the fact that monetary policy wasn't leading to inflation. However, at the same point, you gave yourself a pat on the back earlier on and said that it was monetary policy that saved us from deflation. Maybe I'm just not understanding.
Could you clarify that for me, Governor?
4:45 p.m.
Governor, Bank of Canada
Yes.
If the economy's operating below its capacity, that tends to put downward pressure on inflation. If it's operating above its capacity, that pushes inflation up. The economy's been below its capacity for the last two years. It was initially way below its capacity. It has recovered impressively, actually, and is now back to its capacity.
It's not in excess demand; it's not above its capacity, or at least not significantly above its capacity. The inflation we're seeing is not being generated by too much demand here in Canada. It's being generated by these international factors, which I mentioned.
4:45 p.m.
Conservative
4:45 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Lawrence.
We are moving to the Liberals and Mr. Baker for five minutes.
4:45 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you very much, Mr. Chair.
Governor, thank you very much for making the time to be with us today. I have to tell you; I have a finance background. I studied economics and have two business degrees. Just listening to your testimony over the last little while, I've learned a tremendous amount already, so I thank you for your time and for being here.
I also want to say that I was reading your bio. If I'm not mistaken, you studied at Queen's and, you said, at the University of Western Ontario. You were also, of course, dean at the Rotman School of Management. I'm a Schulich grad, and I'm going to try not to hold that against you as I ask the remainder of my questions, if you don't mind.
The first question goes back to our current rate of inflation relative to those of our international counterparts. I'm wondering, Governor, if the rate of inflation we're seeing in Canada is unique to Canada or if it is a global challenge.
4:50 p.m.
Governor, Bank of Canada
I'm going to begin by saying that there are a lot of great universities in this country, for which we can be very thankful.
I'm going to ask our senior deputy governor, Ms. Rogers, if she wants to say a few words about international inflation. She recently moved back from Europe, so she can give us a more global perspective.
4:50 p.m.
Senior Deputy Governor, Bank of Canada
The short answer would be covering some of the ground we've already covered today, Mr. Baker. As the governor said, the inflation we're seeing today is not a result of excess demand; it's a result of a number of unique factors stemming, in large part, from the pandemic. It's a result of problems in global supply chains and then increased prices for commodities that are traded globally, like oil. This is why you see a very consistent picture of inflation around the world, regardless of differences in economies.
I know in previous questions and discussions, there's been discussion about why different economies are seeing different rates of inflation. Again, as we put it earlier, the G7 countries all have quite different economies, but you see pretty consistent levels of inflation, and that's because they're coming from the same source.
4:50 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you for that.
It sounds like it's a global phenomenon.
4:50 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Can you share how our rate of inflation compares to those of other countries around the world? Are you able to indicate that to us?
4:50 p.m.
Senior Deputy Governor, Bank of Canada
Yes. I think earlier we talked about G7 countries—France, Italy, the UK, etc.—being fairly consistent. I think the latest numbers out of Europe are just above 5%, slightly above where we are. The U.S. inflation rate is a bit higher. There are small differences in the way inflation is measured in some of these countries that we can attribute some of the differences to. For example, used cars play a larger role in inflation measurements in the U.S. than they do here in Canada.
You've also seen the effect of the economy rebounding a bit more quickly in the U.S. because of differences in health measures. There's a variety of different factors that contribute to inflation, but again, you come back to what the largest contributing factors are. In all of these countries, you would hear supply chain pressures and commodity prices.
4:50 p.m.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you very much for that.
Governor or Senior Deputy Governor, how does the current economic recovery in Canada compare to the recovery from past recessions in Canada?
4:50 p.m.
Governor, Bank of Canada
I would say that everything about this recession has been very different from past recessions. First of all is its incredible severity and its suddenness. It's a fact that basically almost every country in the world went into recession on almost the same day.
The recovery has also been the strongest on record by far. To some extent, that reflects the fact that part of the cause of this recession was that truly exceptional public health measures needed to be taken that literally closed parts of the economy. When those were reopened, the economy bounced back very quickly.
The other element is the exceptional stimulus that has been provided here in Canada and in many other countries around the world. Faced with an economic catastrophe, many governments have deployed exceptional policies, and they've worked.
4:50 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Baker.
We are moving now to the Bloc and Monsieur Ste-Marie for two and half minutes.
4:50 p.m.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
Mr. Macklem, on February 7, 2022, American economist Joseph Stiglitz wrote an article entitled “A Balanced Response to Inflation.” I'll read two excerpts and then ask for your opinion on what he wrote.
At the start of the article, he wrote the following about inflation:
Nonetheless, my biggest concern is that central banks will overreact, raising interest rates excessively and hampering the nascent recovery. As always, those at the bottom of the income scale would suffer the most in this scenario.
The other excerpt comes from the end of the article:
This much we do know: A large across‑the‑board increase in interest rates is a cure worse than the disease. We should not attack a supply‑side problem by lowering demand and increasing unemployment. That might dampen inflation if it is taken far enough, but it will also ruin people's lives.
I want to hear your thoughts on this matter.
4:55 p.m.
Governor, Bank of Canada
There are many aspects to consider in this assessment. I agree with some parts, but not with the entire analysis.
I agree that monetary policy alone can't address the very high price of oil or reduce bottlenecks in the global system. However, as I said before, it's very important for monetary policy to keep inflation expectations well anchored. When the price of oil goes down, or at least stops rising, and bottlenecks start to ease, the pressure on inflation decreases. Inflation will come down if inflation expectations are well anchored. Monetary policy must keep inflation expectations well anchored.
4:55 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Ste‑Marie.
We are moving to the NDP and Mr. Blaikie for two and a half minutes.