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.
Conservative
Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB
It would have been less.
Thank you. Those are my questions.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Morantz.
We're moving to the Liberals. I have MP Damoff.
Welcome to our committee, MP Damoff.
November 23rd, 2022 / 5:40 p.m.
Liberal
Pam Damoff Liberal Oakville North—Burlington, ON
Thank you, Chair. Thank you for letting me come and visit today.
Thanks to both of you for being here.
Governor, if I'm not mistaken, I heard you say that for the price on pollution, its impact on inflation was 0.1%. Is that correct?
Governor, Bank of Canada
That's the contribution to inflation, our estimate going forward each year, so that's correct.
Liberal
Pam Damoff Liberal Oakville North—Burlington, ON
By my math, if it's 0.1%, that would be one cent on every $10 that prices go up.
We know, just as an example, that for lettuce right now, you can't find it, and if you can find it, it's extremely expensive. That's because of droughts that happened in California. I'm just wondering, can you tell this committee if there is a cost to our economy and an impact on economic growth from these extreme weather events like droughts, flooding and wildfires?
Governor, Bank of Canada
Look, there's no doubt that we are seeing with increasing frequency extreme weather events—floods, forest fires, heat waves—and those are affecting people's lives. They're affecting people's livelihoods.
I think the other thing we're seeing is that even.... You can go back to B.C. a couple of summers ago. You had the drought and then you had severe flooding. Well, the infrastructure damage caused by that is still being repaired—roads were knocked out, bridges were knocked out—so the other effect we're seeing is that this can disturb supply chains.
More recently, in Europe the Rhine was very low this year. It was very dry. That was creating shipping bottlenecks. More recently, the Mississippi has been very low. That's creating shipping bottlenecks.
There's no doubt that these things are having very significant local effects on the citizens, but they can also have broader economic effects—on harvests and on supply chain infrastructure. That is something that really speaks to the importance of investing in transition, but also investing in adaptation and mitigation.
Liberal
Pam Damoff Liberal Oakville North—Burlington, ON
Thank you.
We heard the term “homegrown inflation” used earlier.
I met recently with Emily O'Brien, who founded Comeback Snacks, which is a gourmet popcorn company with a purpose. I didn't realize that sunflower oil is used to make popcorn and that it comes from Ukraine. She's had trouble getting sunflower oil. In the U.S., the corn crops now have been turned to sunflowers to meet the demand for sunflower oil, so she has had difficulty not only in getting sunflower oil but also in getting the corn to make the popcorn. She is concerned that she's going to have to raise her prices.
All of those are events that have happened beyond our borders, so when we talk about homegrown inflation, I'm wondering, is Canada the only country being impacted by inflation? How do we compare with other countries, such as the U.S., the U.K., the EU and others?
Governor, Bank of Canada
To respond directly to the second part of your question, if you want some numbers, inflation in the U.K. is 11.1%. In the Eurozone it's 10.6%. In the U.S. it's 7.7%. In Germany it's 10.4%. In France it's 7.1%. In Canada it's 6.9%. In Japan it's 3.7%. You can see that in all these countries, with the exception of Japan, inflation is high, and I can also tell you that it's broad. It tends to be higher in Europe because they have been more affected by the kind of supply chain disruptions you talked about and by Ukraine, and the energy price increase in Europe has been much bigger than it has been in North America, particularly for natural gas.
Yes, this is certainly a global phenomenon. I think that largely reflects the fact that we've all gone through the pandemic at almost the same time. Our economies plunged into deep recessions. Fortunately the actions taken globally have supported strong recoveries, but we are now on the other side of that. There's a war in Europe. A number of these economies are overheated, and supply chain disruptions continue, so you're seeing inflation around the world being too high.
That doesn't do Canadians any good, though. Canadians are living today with inflation that's too high, and we have to get it down.
Liberal
Pam Damoff Liberal Oakville North—Burlington, ON
Thank you. I have only 15 seconds left, so I will end it there. Thank you very much.
Thank you, committee members, for having me here.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Damoff, and you're welcome to be here anytime.
Now we go to the Bloc and MP Ste-Marie for two and a half minutes.
Go ahead, please.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Thank you, Mr. Chair.
A November 21 article in The Globe and Mail by Ms. Erica Alini and Ms. Rachelle Younglai discusses a practice adopted by at least two of Canada's major banks, TD and CIBC, and possibly by the Bank of Montreal as well. In the context of mortgages, these banks allow their distressed customers to defer the portion of the monthly interest that the customer is unable to pay during the month against the total mortgage amount, thereby inflating the total value of the mortgage. In the same article, if I understand correctly, they say that there are more and more mortgages being paid off over a period that exceeds 30 years.
I would like to hear what you, as Governor of the Bank of Canada, have to say about this.
Governor, Bank of Canada
Our senior deputy governor may wish to add something. For my part, I would reiterate that we are not a prudential regulator or a consumer regulator.
There are indeed Canadians who bought their homes when prices were at their peak and chose a variable rate mortgage, so the sharp increases in interest rates are now having a big impact on them. When banks can find a way to help their customers not lose their homes, that's good. However, we don't want the banks to create new risks.
If you want to get more detail on this, you really should be asking the prudential and consumer regulators these questions.
Bloc
Gabriel Ste-Marie Bloc Joliette, QC
Can the senior deputy governor, Ms. Rogers, answer that question?
Senior Deputy Governor, Bank of Canada
If you'll permit me to answer in English—
Senior Deputy Governor, Bank of Canada
—I was just at a meeting today. The governor wasn't at this meeting, but it was with the Financial Consumer Agency of Canada, which is the regulator that works with banks on how they treat their customers on these issues of fairness and stuff. I can tell you that they are actively monitoring this issue.
On one hand, it's encouraging that banks are working with clients who are under stress and making sure that they find ways to help them make payments, but we don't want them to get, in the long term, further into debt.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Ste‑Marie.
Now we move to MP Blaikie with the NDP for two and a half minutes.
Go ahead, please.
NDP
Daniel Blaikie NDP Elmwood—Transcona, MB
Thank you very much.
I am wondering if you can help us locate the inflationary demand in the economy. We talk a lot about this, but we know that, for instance, this year, 1.5 million Canadians have been using food banks. Presumably these aren't Canadians who are causing inflation. We know that a lot of Canadians are now having trouble paying their mortgage. They don't have a surplus of funds that they're using to bid up the price of consumer goods.
When we talk about whether it's government money being pumped into the economy that is then spurring inflationary demand or we talk about the role of corporate profits in spurring demand and investment spurring demand, what are the areas of inflationary demand? I think a lot of Canadians, when they hear the kind of talk around Parliament Hill, think, “I'm not bidding up the price of goods at the supermarket. I'm just trying to keep up.”
Whether it's excess corporate profits or certain kinds of government spending, how does that translate into higher grocery prices or higher housing costs? Where does that inflationary demand manifest in the economy, and who are the people or the organizations or the corporations behind that inflationary demand?
Governor, Bank of Canada
As I've tried to outline, you don't get to 8.1% inflation because of one thing. It's multiple things. Where is the excess demand? Where are the price pressures? The fact is that, yes, inflation was at 8.1% and it's now down to 6.9%. However, that's still 6.9% inflation. Where is that coming from?
The first part of the inflation came from global goods. What happened? Well, Canadians were at home all day. They couldn't get many of the services they wanted. They wanted more space, bigger houses, home entertainment and home gyms. They couldn't use services, so they substituted those with goods. At the same time, the global supply chain was gummed up by COVID, so you had this big increase in demand and limited supply, and you saw an unprecedented increase in global goods prices.
The rate of inflation on those has started to come down. Shipping costs have come down, and some commodity prices have come down. Now, as things normalize, consumers are shifting out of goods and back into services. There is now excess demand on services. Household economies have reopened quickly. People want to buy, go to a restaurant, and take a holiday.
A lot of Canadians actually saved a lot of money during the pandemic, because they couldn't go on vacation. They have extra money in their bank account and they're spending that now. They want to buy more goods and services than the economy can produce, and that is driving prices up.
As I said, we're starting to see this level off. I think our actions have something to do with that. We are expecting it to turn around and come down, but it is going to take some time.