Evidence of meeting #32 for Finance in the 44th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
What I hear you saying is that, to your knowledge, that hasn't been quantified yet to the extent of being able to give even a precise range. Is there a range of the impact on prices or the number of people who are crowded out as a result?
Director, City Program, Simon Fraser University, As an Individual
We're slowly moving into this process. We've discovered, for example, that the amount, again in the case of a specific measure, is that $75 billion of residential real estate in Vancouver is owned by individuals who don't actually live in Canada. Again, that begins that type of conversation. It's something that is part of the new leadership that has occurred with regard to the investments in measuring systems within just the last four years. This is a process that we still need to continue.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Yan.
Thank you MP Baker. Your time is up.
Members, we are now moving into our third round. First up for the Conservatives, we have MP Fast for five minutes.
Conservative
Ed Fast Conservative Abbotsford, BC
Thank you, Mr. Chair, for the opportunity to ask a few questions.
My questions are directed to Messrs. Dehejia and Robson.
The governor of our central bank recently appeared before us and effectively denied that his monetary policy has contributed to higher inflation. Actually, when given an opportunity to implicate excessive government stimulus spending, he similarly demurred.
Perhaps a question to you, Mr. Robson, is Mr. Macklem correct in suggesting that the Bank of Canada's policies have not contributed to skyrocketing inflation?
Chief Executive Officer, C.D. Howe Institute
It seems hard to absolve the Bank of Canada from responsibility. I would cut it some slack. As I said, I would cut the federal government some slack, because at the beginning of the pandemic, it wasn't clear how much liquidity was going to be enough. Under the circumstances, erring on the side of providing more was understandable.
What we are clearly seeing now is that we are supporting desired spending in the economy, with nominal GDP up 12% year over year. This is far in excess what the economy can actually produce in terms of goods and services. It's up 3% in real terms year over year. The difference between the 12% and 3% is a 9% increase in the level of prices, when you measure it across the entire economy.
The Bank of Canada has to take some responsibility for that. We've recently seen that inflation is well ahead of what it projected in its last monetary policy report. The logic to that suggests that it should also be ready to tighten policy by more than it has been suggesting.
Conservative
Ed Fast Conservative Abbotsford, BC
Mr. Dehejia, you stated that large-scale asset purchases by the central bank have flooded the market with liquidity. I'm assuming that the conclusion we can all draw is that it has spawned the inflationary pressures we are presently experiencing.
Associate Professor of Economics and Philosophy, Carleton University, As an Individual
Yes, indeed. I would add that we have two inflation problems that have been spawned by unconventional policy. We now have rising CPI inflation and also asset price inflation. Both have been very problematic.
Conservative
Ed Fast Conservative Abbotsford, BC
Mr. Dehejia, I noted the distinction you've made.
The government has suggested that inflation is actually a global phenomenon, effectively absolving it of any responsibility for the current inflationary pressures we're experiencing in Canada.
Yet, I believe your testimony, Mr. Dehejia and Mr. Robson, suggest otherwise. Am I correct?
Associate Professor of Economics and Philosophy, Carleton University, As an Individual
Yes, indeed. The claim that it's a global problem would seem to imply that it absolves the government or the central bank from doing anything about it. It's a global problem, because many countries have had very loose monetary policies well beyond where they should have tightened up. It's a global problem, because other central banks have also been very loose with their policies.
Our problem is made in Canada and can only be solved here. I find it to be a sort of a cop-out, the claim that it's a global problem.
Conservative
Ed Fast Conservative Abbotsford, BC
Mr. Robson, do you have any sense as to how high interest rates would now have to go to get inflation under control?
Chief Executive Officer, C.D. Howe Institute
As time goes by, I am increasing my estimate of what that would be. I am not a forecaster, but what is relevant is the level of the Bank of Canada's overnight rate compared to inflation expectations. That's why I said earlier, if inflation expectations stayed down around 2%, then the Bank of Canada doesn't need to raise its overnight rate all that far in order to contain the problem.
At the moment, though, it seems to me that inflation expectations are likely rising. Even the Bank of Canada's last forecast doesn't have inflation getting back to 2% for a couple of years plus. The higher inflation expectations begin to go, the higher the overnight rate itself needs to go. At this point, I'm getting concerned that we might need to see an overnight rate of 3%, maybe 4%.
That's not as high as it got during the last disinflationary episode, but it's quite a bit higher than what people are ready for. It's certainly higher than what the government is expecting in its fiscal plans, and the cost of servicing its own debt.
Conservative
Ed Fast Conservative Abbotsford, BC
Mr. Robson, your institute issued an “Intelligence Memo” dated January 25 in which you are quoted as saying, “Inflation is high where monetary policy has been inflationary, and low where it has not.”
You mentioned Switzerland as a jurisdiction where inflation has been kept low. Canada's is high and going higher. What is it that Switzerland has done to control inflation that Canada has not?
Chief Executive Officer, C.D. Howe Institute
My short answer is that every country that controls its own central bank is in charge of its own inflation rate, because it's a matter of supply and demand for money. The euro area has a common currency, so to some extent, they can say it's a bit of an international problem affecting the euro area, but every central bank controls the value of its own currency. We have our own central bank. We sometimes talked about adopting another currency, such as the U.S. dollar. We decided not to, because we wanted control over our own currency.
We have control over our own currency. It's up to us to determine our inflation rate.
Liberal
The Chair Liberal Peter Fonseca
Thank you.
Thank you, MP Fast. That's the time.
We are moving over to the Liberals.
Welcome, MP Sorbara. I know you were a long-time member of this committee. You have five minutes.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Chair.
It's great to see so many of my colleagues this morning.
I'd like to make a couple of quick comments. On the related topic today of monetary policy, that was my speciality during my graduate studies. At the University of Toronto, I did my thesis on monetary policy, so it's very relevant to the world we live in. I also worked through and experienced the 2008-09 financial crash. I interviewed on Wall Street during the 1997 October crash. I worked through the ABCP, asset-backed commercial paper freeze-up here in Canada, which was a $30-billion freeze-up. I was also a survivor and worked through the events of 9/11 when I worked down in New York. Coming through COVID has been another experience here, now more on the practitioner, government side.
To the C.D. Howe Institute, as a monetarist, I've read everything from Friedman to von Hayek, and Dodge to Larry Summers most recently. I think the inflation we're dealing with here pertains to a lot of supply chain issues. You look at used vehicle prices, chips and new vehicle prices. What's happened there is very important.
I agree that we need very well-anchored inflation expectations. That is very important. Money is a store of value, a store of wealth for Canadians, but I would argue that global inflation has been largely caused by the supply chain global issues.
Mr. Robson, I think you would agree that we needed to have a bazooka-type response to the pandemic when, nearly overnight, a third of the Canadian economy and a large chunk of the world economy froze up. We needed to have an appropriate fiscal and monetary response.
I would define those two measures as appropriate, as an economist by training and as a practitioner in the global financial markets for 20 years before I became a member of Parliament, and having worked and lived through the other financial crises that occurred. Those responses were pertinent.
Would you not agree that the responses were pertinent? After that, we'll get to today.
Chief Executive Officer, C.D. Howe Institute
I've already said with respect to the fiscal and monetary measures that I think, under the circumstances, they were broadly appropriate. When it comes to whether they were exactly right, I would cut people quite a bit of slack, because they were operating on such a scale and under such time pressure.
Having said that, though, we now have a situation where nominal spending is growing far more quickly than the economy's ability to produce goods and services. I would express what you did about supply chain issues a little differently. It's true that some are spectacularly worse than others—particularly in energy markets right now—but across the board, what we're seeing is a constrained ability of the economy to produce goods and services. The labour market has come back very strongly, but business investment has been very weak and productivity growth has been weak.
The ability of the economy to generate goods and services in real terms is constrained. If you continue to run a monetary policy and fiscal policy that presume that the economy can grow a lot more quickly in a sustained way, you'll end up with inflation, because you've got too much money chasing too few goods and services.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
We all know about the aggregate supply versus aggregate demand side of the economy and what's happening there.
I would argue that one of the very positive outcomes of the pandemic is that we have limited scarring of the economy. Whether it's measured by our labour market or by GDP, the Canadian economy is obviously now larger than where it was pre-pandemic and so forth.
Obviously, there are indirect consequences for credit markets when you have to lower rates— and I'm not speaking for the Bank of Canada, nor would I do so. Obviously, we need to look at measures for helping Canadians to ensure that they can afford to purchase a home, especially first-time buyers. We do know that 70% of Canadians own their homes and have paid off their mortgages. The home ownership rate in Canada has hovered around that 70% rate, and 95% of our housing market is actually private housing market with no government interaction at all with participants so we do have a healthy housing market, but we do have issues that we're addressing.
I look forward to seeing some of the measures that we put in our platform on blind bidding, the housing accelerator fund, and many measures to that extent.
I have read your “Intelligence Memos” from January and February. They're very thoughtful, and I do agree that we need to have well-anchored inflation expectations both for the business side....
In terms of your comment on productivity, Mr. Robson, it has been a long-standing issue under successive governments that we need to address our productivity challenge or gap versus the United States. I put out some of my own thoughts on how we should do that. It's great to see the digital adaptation program our government put out and the women entrepreneurship loan fund.
We have more things to do and I look forward to doing those things over the coming years.
If you have any more thoughts on the productivity question, I'd love to hear them.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Sorbara. That is the time.
We are moving to the Bloc.
We have MP Trudel for two and a half minutes.
Bloc
Denis Trudel Bloc Longueuil—Saint-Hubert, QC
Thank you, Mr. Chair.
Ms. Cyr, you talked in your presentation about a major project. I would like you to talk to us about it in a more comprehensive way.
There's a lot of talk about housing affordability, the fact that it's expensive and scarce, and we're looking for solutions. To me, a major building project implies that governments need to do more than they are doing at the moment, that more housing and public investment is needed to tackle the current housing crisis.
When you talked about a major building project, is that what you meant?
General Manager, Bâtir son quartier
They say that inflation is here to stay, that it's clear that low-income people are being hit hardest, and that housing is a major expense for Canadian households.
However, we need to house everyone. We must therefore implement a major project that will mobilize all of society and all of the different players, where government investments will target those who need it most.
It seems to me unavoidable that we undertake such a project at this time. When I say I want to see a mobilization of all actors, I mean all parties. We are often concerned about private property ownership. It is true that everyone has the right to own property. However, if there are choices to be made, I repeat that we must first think of the poor, of those who receive a monthly cheque for $1,000, more than half of which goes to pay for housing. What are they left with to meet other needs?
We have a collective obligation to find solutions to ensure that all Canadians find housing, especially those most in need.
Bloc
Denis Trudel Bloc Longueuil—Saint-Hubert, QC
There is a particular phenomenon in Quebec, namely community support for housing. This support is particularly given to people experiencing homelessness.
However, the statistics tell us that if we simply find housing for a person who has lived on the street for years, but we don't help them make a budget, pay their rent, pay their bills, and so on, that person is very likely to return to the street after a few months. So people who have experienced homelessness need to get used to having a normal life. If we fund this community support—and in Quebec, we do it well—it leads to savings in social costs, particularly in health care.
Can you tell us more about this community support?
General Manager, Bâtir son quartier
Community support helps people who have not yet developed much independence, let's put it that way. Everyone needs decent housing and to manage it independently. However, in some cases, people have a bit more difficulty.
Community support provides support services to help people who are at risk of becoming homeless, or who are already experiencing some homelessness, or who have health problems. It enables them to get treatment and support so that they can remain in their homes independently. At the same time, it saves the health care system several thousand dollars.