Evidence of meeting #68 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.
NDP
Jagmeet Singh NDP Burnaby South, BC
I mean, it's so easy to use the term. You were concerned about wages, but I don't see that same concern reflected with respect to some significant corporate profits.
Governor, Bank of Canada
Look, our concern is about inflation, and there are many elements—
NDP
Jagmeet Singh NDP Burnaby South, BC
Isn't inflation the cost of goods being higher, and some corporations have raised their prices?
Governor, Bank of Canada
What we're seeing is that businesses are passing on higher costs very quickly and they are maintaining their profits. Overall, if you look at profits as a share of GDP, they are up. A big part of that is that oil prices, energy prices, have gone up a lot. The input prices in the energy field have not gone up as much as the selling price, so their profits are up. But my comments are actually much broader than that. The fact that you're seeing companies pass through higher prices very quickly is impacting consumers.
I would stress two things. First of all, what we're expecting to see from businesses is that we have seen oil prices come down, and we have seen the prices of some agricultural products come down. They're still pretty high, but they've started to come down. With shipping costs—
Governor, Bank of Canada
Okay. It's an important question. We are expecting to see businesses pass those input price decreases as quickly back down to consumers as we did on the way up.
NDP
Jagmeet Singh NDP Burnaby South, BC
That's interesting. Okay.
The other area of concern you raised.... What you know is going to happen is that as the interest rates go up, people might lose their homes. That's going to be pain. You know that decisions you make will cause pain for workers. How much pain is too much pain, or is that a consideration that you make?
Coupled with that, you've talked about how a higher unemployment rate might be important to bring down inflation. How much unemployment is the target that you think needs to be attained before interest rates cool down?
Governor, Bank of Canada
There are a few questions in there.
Let me just begin by highlighting that we are very aware that the actions we are taking are having an unusually large impact on Canadians. Canadians have a lot of tough questions for us. Their elected representatives have a lot of tough questions for us. Actually, we understand that.
We don't want to make this more difficult than it has to be. We are really trying to balance the risks of not doing enough versus the risks of doing too much. If we don't do enough and are half-hearted in our efforts to control inflation, Canadians are going to have to continue to endure inflation. That is a cost that every Canadian is bearing. For the average Canadian, inflation at 7% instead of 2% is costing them about $3,500 extra a year. That's a cost that every Canadian is bearing. If we don't do enough, they're going to continue to do that. Worse still, if we don't do enough, ultimately we're probably going to have to raise interest rates even higher and generate an even sharper slowing to get inflation back under control.
By moving forcefully, we're really trying to avoid that. If we do too much, it's going to be more painful than it has to be. We are trying to balance those two things.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Governor, and thank you, MP Singh. That's the time.
We are moving into our second round.
Welcome, MP Scheer, to our committee. You have five minutes.
November 23rd, 2022 / 5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Thank you very much.
I want to pick up on a line of questions from my colleague Mr. Singh.
You were talking about your message to employers and workers asking for wage increases. I just want to make sure I understand this right. What you're saying is, “Inflation isn't going to stick around forever, so before you go and ask for big wage increases, just keep that in mind.” You wouldn't want wage increases to put pressure on inflation staying high. Is that a good summation?
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
When inflation comes down, though, it doesn't mean that prices necessarily come down. It just means that prices go up more slowly.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Okay. So workers would still lose on the difference between what they're being paid today and what those prices will be in the future. They're not going to drop below where they are today.
Governor, Bank of Canada
Well, yes, I mean, our mandate is to control inflation. We don't have a price level target. We have an inflation target. So we're trying to get the rate of increase of inflation back—
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
But inflation is defined as “prices going up”, so they are linked. I just wanted to make that point, because your message to employers and workers is basically to exercise restraint so as not to contribute to inflationary pressures.
In 2021, the Bank of Canada gave 18.4 million dollars' worth of bonuses to its own staff. Would you consider those bonuses to staff working at the bank as contributing to inflation?
Governor, Bank of Canada
I actually think the Bank of Canada has been pretty restrained, but the senior deputy governor can take you through—
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
It's just a matter of opinion. Do you think they added to inflation? I want your opinion.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Have you received a bonus yourself since March 2020?
Governor, Bank of Canada
No. In fact, as per the legislation under which I'm appointed, I have no ability to get a bonus.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Okay.
You talked about the bank's negative position. I just want to make sure I understand this properly. The bank is losing money because it has to pay interest on the settlement accounts, and now that the rates have gone up, the interest payments are greater than what the bank receives from the government for the bond rate itself. Is that correct?
Governor, Bank of Canada
Yes. What we're paying in interest on our settlement balances—which are our liabilities—is larger than the interest we're receiving on our assets, which are largely Government of Canada bonds.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Who's receiving those higher-interest payments? Would those be the large financial institutions that have accounts with the bank?