Finance Committee on March 24th, 2022

[Alexandre Plourde]

Thank you for that question.

"Reduflation", which is also called undersizing, isn't a new phenomenon, although it's becoming more prevalent in the current inflationary climate. It's a technique that can be used for virtually any food product, and even non-food products. We've recently seen many examples in the media, involving cereal boxes, bricks of cheese and juice containers, for example. Merchants can use all kinds of tactics to reduce product quantities without consumers realizing it when they shop for groceries.

[Technical difficulty—Editor]. For example, they can add a bulge to a juice bottle to give the impression it contains as much juice as it previously did.

What troubles us about this practice is that it relies on consumers' price sensitivity. Merchants can successfully increase their prices in somewhat devious and unethical ways. The problem is that it isn't illegal per se for merchants to reduce product quantities. The Consumer Packaging and Labelling Act and the Weights and Measures Act require merchants to state product quantities on items for sale but doesn't force them to inform consumers that product quantities have been reduced.

What we would like, particularly in the current inflationary climate, is labelling standards requiring that merchants clearly inform consumers that product quantities have been reduced. We would also like a measure to be implemented across Canada requiring that prices per unit of measurement be displayed. That would enable consumers to compare products and be better informed on the prices they pay for each product.

In our view, that kind of measure…

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Plourde.

Thank you.

We are moving to the NDP. We have MP Blaikie up for six minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much.

I'll start by thanking all of our witnesses for being here today.

I'm going to focus my questions toward Mr. Macdonald from the Canadian Centre for Policy Alternatives.

I just want to come back briefly to the question of benefits that are indexed to inflation. I often hear from seniors in Elmwood—Transcona who are outraged when they see the relatively small increase to their Canada pension plan benefits. When you compare that to the cost of living, they rightly notice that those things don't quite add up.

I wonder if you might have a little wisdom to offer the committee at to why Canadians often feel that their benefits, while indexed to inflation, don't keep pace with the rising costs they experience in their monthly budgets.

[David Macdonald]

Sure. The first and obvious point is that there is a delay between the time when inflation is registered and the time that benefits go up.

The bank did a study looking at people's perceptions of inflation versus the actual number that is published. The things people buy differ. Seniors are going to buy different things than families with children, who are going to buy different things than people going to school.

The CPI is for all Canadians. It's not just for a particular group, so it's certainly possible that for seniors relying potentially more heavily on things like groceries, the prices are going up faster than the general level.

The CPI is an average of a variety of prices. It doesn't necessarily represent everyone's experience. In fact, it represents no one's experience because no one both rents and buys houses and buys cars every year. It is an average, so people can experience it very differently depending on where they are.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Okay, thank you for that.

You mentioned earlier that some beef processors, for instance, were highlighting the increased costs in beef as a reason for record profits. We know that additional money isn't always distributed fairly within the supply chain.

I just wonder if you could help the committee understand a little bit better some of those inflationary pressures on food prices. Who are the winners and who are the losers? What kinds of things might government look to do to try to make sure that consumers aren't paying an inordinate amount of additional costs for increased profits for someone along the supply chain while others in the supply chain and consumers themselves suffer?

[David Macdonald]

When we look to the reasons for inflation, outside of external supply shocks like the price of oil, often we point fingers at workers, saying that workers require wages to be too high, but there's another possibility, which is that corporations are increasing profits along the supply chain. Their cost of goods may well have gone up and they may well pass that amount on to consumers, plus an extra 2% or 5% on top to pad their own profits. That's another possibility as to why inflation might be going up.

It's worth considering market concentration in particular areas. I mentioned beef just because it's so concentrated and there are so few facilities in Canada that actually process beef. There are three major plants, two of which are owned by Cargill, and Cargill reported record profits in 2021. It's a big international corporation. They cited in part high beef prices, so it wasn't exclusively Canadian, but it just goes to show that the fluctuation in prices and consumers' general acceptance at the grocery store that prices will be higher doesn't mean that there isn't a profit margin being built in as a result of that trading up the supply chain.

That isn't a surprise to beef producers. They're well aware of the market concentration. It's not a surprise to farmers in general who haven't seen the prices they receive for their goods go up, despite the fact that the price of bread goes up for end consumers. Somewhere along that chain, someone is capturing that value and it's not farmers. It's often where those supply chains are very constrained through a couple of different parties—and the grocery store industry isn't terribly distributed in Canada either—where you see a concentration of profits.

It's well worth considering when we are seeing this big boost in inflation. People are taking advantage of it to boost their own profits.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

We often look to competition within the market in order to be able to hedge against unfair profit-taking. Where there's an insufficient amount of competition in the market, what are some other solutions that Canadians might look to in order to make sure that no one particular company or no one particular player in these supply chains is making an inordinate amount of profit?

[David Macdonald]

In the short term, one of the approaches could be an excess profits tax. I know this is something that's already under consideration for the banking industry. It could also be considered for the oil and gas industry that will see, I'm sure, record high profits because of high oil prices this year. However, it could also be applied to other sectors such as grocery store chains, and so on, so that any excess amount they're making could then be recycled potentially to a transfer to low-income households, as others have mentioned here, increasing a one-time payment to the GST credit as an example of that.

That's maybe a short-term option. If we take a look at the issues around beef processing in particular, building out more local supply of abattoirs, which could be based on federal funding, is another way of distributing that market. Sometimes market concentration isn't just going to go away on its own. Often governments need to intervene to make markets fair. It's not that they will necessarily be fair. In some cases they will be, but in some cases they won't be, so it's worthwhile continuing to examine market concentration and excess profit-taking and what governments can do about it besides just an excess profits tax.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Macdonald, and thank you, MP Blaikie.

Members, we are moving into our second round, and just looking at the time, this will be our last round. We're starting with the Conservatives and we have MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Welcome to all our panellists today. Thank you.

For those of you who are here for the first time, welcome. It's nice to have a diversity of voices here at this committee.

I'll focus my questions on Mr. Punwasi and Mr. Rabidoux.

Mr. Punwasi, I'll just pick up a bit on where my colleague left off, but first, I commend you and your team for your work at Better Dwelling, providing some excellent insights in a very consumable, easy-to-read form. It's great and refreshing to see some consumable information out there for Canadians.

If the Bank of Canada didn't purchase government bonds, what would have happened to interest rates?

[Stephen Punwasi]

Interest rates would have increased at the scale of borrowing they were doing. They would have absorbed a lot of the credit liquidity in the market, and that would have increased all mortgage rates right across the board, but it would have actually increased all lending rates.

On the other hand, the Bank of Canada would have been able to focus on its actual mandate of maintaining inflation and that would have completely changed the outcome. I believe Scotiabank said that around last fall is when they should have been starting to raise rates, but they were still supporting government spending instead.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay, thanks. That's a helpful clarification. It simplifies it for me.

You mentioned inequality. Who is hurt most by inflation?

[Stephen Punwasi]

It is usually people who are paid in cash.

The wealthier you are, the less likely temporary inflation will erode your wealth because you will have better ways of allocating your money with inflation hedges. You would own a home or you would own investments that would respond to inflation.

People who are paid with cash don't necessarily get the raise they would get from their cost of living. Their groceries may have gone up 10%, but the official inflation rate from StatCan says something like 5%. If they get the 5% inflation raise, they might see their quality of life deteriorate. They're also the most likely to have cash in the bank accounts, which is not allocated to their investments.

[Adam Chambers, Conservative, Simcoe North, ON]

Right. Economically vulnerable people are at the most risk, such as those on fixed incomes and seniors, etc.

You mentioned those who hold assets, but does anybody else or do any other entities benefit from inflation?

[Stephen Punwasi]

Borrowers would. The question is whether or not the benefit of the amount of money borrowed outweighs the negative impact of inflation.

If 70% of your costs increase, but 30% of your costs are housing and your mortgage gets deflated due to low rates, you're kind of benefiting, but you're not really. You're losing out in the end.

[Adam Chambers, Conservative, Simcoe North, ON]

What about the federal government? Does it benefit from inflation?

[Stephen Punwasi]

They're a pretty big holder of debt, to say the least, but inflation itself is a tax, by design because those who are holding debt end up paying the liability to the issuer, which would be the state, so higher inflation means that the issuer gets to dilute the value of their own currency.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Mr. Rabidoux, thanks very much for your opening comments. I found the comments you provided the committee in advance very helpful.

I know you were cut off a little bit. You provided a chart that showed the relationship between business investment and residential investment. What about that chart concerns you?

You see residential investment as a share increasing substantially and business investment almost at record lows. What do you make of that?

[Ben Rabidoux]

To use an analog, if we look at total residential investment as a share of all investment across the economy—investment by businesses and government—it's about 40%.

Now, why is that number important? If we look at OECD countries over the last 20 years, really only three ever got to that level. They were Ireland, Greece and Spain in the mid-2000s. They subsequently suffered from a very severe housing downturn.

The concern is that as people pour more money into residential estate and less into the productive elements of the economy, the ability to service that debt longer term is arguably diminished. It's a big concern from where I stand. We're seeing record residential investment and very low business investment.

[Adam Chambers, Conservative, Simcoe North, ON]

Very quickly, give us a two-second answer. You said it's a crisis. Is it a housing bubble?

[Ben Rabidoux]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Rabidoux.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

We are moving to the Liberals with MP Chatel for five minutes, please.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Mr. Chair. Thanks as well to all the witnesses.

Mr. Desjardins, thank you for accepting our invitation to the committee. It's inspiring to hear you talk about real estate development integrated into the environment. We're going to go back to that because I was very interested in the connection you made between green infrastructure and property development.

First of all, we've heard extensive testimony in committee that a supply and demand issue is central to the problem of inflated real estate prices both in Canada and elsewhere. We also heard that today. In your introduction, you discussed specific supply constraints at the municipal and provincial levels.

Would you please tell us more about those constraints?

[Jessy Desjardins]

Thank you very much for your question.

In real estate, there are obviously a lot of restrictions on rapid housing construction these days. When you submit a project to a municipality, it can take more than 12 months to get a building permit. However, in an inflationary market such as the one we're in, a project may no longer be viable 12 or 18 months after the application's filed. Many projects are submitted but then have to be amended to reduce costs and redesigned from top to bottom.

Consequently, expedited permitting would help us more effectively manage inflation-related risk in housing construction. Faster permitting for projects near core transportation corridors could also make it easier to link all the investments that the various orders of government make in public transit. Delays are really the issue.

Furthermore, regulations, which are increasingly strict for the types of buildings that must be constructed, add further costs to those associated with mere inflation and building quality. In Quebec, residential construction represents 4.2% of greenhouse gas emissions and motor vehicles 22%. We should address the problem holistically, taking the complexity of our cities into account, and come up with collective solutions to accelerate construction.