It was about a year and a half ago.
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.
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.
6:20 p.m.
Conservative
6:20 p.m.
Governor, Bank of Canada
Well, a year and a half ago, the economy was in a pretty different situation, but—
6:20 p.m.
Conservative
6:20 p.m.
Governor, Bank of Canada
Look, we need some spending in the economy, but we want to see spending slow so that supply can catch up and we can take the steam out of inflation. That's why we've been raising interest rates. Higher interest rates reduce spending, particularly on things you buy on credit.
6:20 p.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Thank you.
We're coming up on the one-year anniversary of the mandate renewal. The mandate was slightly changed from previous versions to include another measure on which the bank should be focused. It was solely focused on inflation before, but the government added a focus on “maximum sustainable employment”, whatever that means.
Did that change in the mandate cause a delay in your response to inflation such that you had something else to worry about in addition to inflation?
6:20 p.m.
Governor, Bank of Canada
I can give you a very short answer to that one. The answer is no. The revised mandate that was agreed on last December was very much consistent with the previous mandate. I think what it did was that it was clearer, but it was.... The primary objective continued to be price stability. The target continued to be a 2% inflation target.
The recognition that we care about the labour market is not something new. We've always cared about the labour market. In fact, maximum sustainable employment and low inflation go hand in hand. If you're missing jobs, if you're missing incomes, you're going to be missing spending and the inflation is going to be below—
6:20 p.m.
Conservative
6:20 p.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
The annual run rate spending of the government is up 30% since 2019 levels. That's pre-COVID. Forget about all the spending during COVID. Annual spending was up 30%.
Would you classify that as fiscal restraint?
6:20 p.m.
Governor, Bank of Canada
Fiscal spending is the role of the government and you, as Parliament.
We have a very clear mandate. What we do is take into account the fiscal spending decisions that you make, and then we make the decisions that we need to make to fulfill our mandate.
6:20 p.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
I have a final question, Mr. Chair.
There is a lot of discussion about the decoupling of supply chains, or friend-shoring, if you will. How does that factor into inflation? Can Canadians expect that inflation will take longer to come down because we are revamping supply chains, which may lead to higher prices? Is that a headwind that you're factoring in?
6:20 p.m.
Governor, Bank of Canada
I think it is a headwind.
At the outset of the pandemic, when we didn't all recognize how long it was going to be, we thought supply chains would come back to normal more quickly. This pandemic has gone on for a long time.
Certainly, when you talk to businesses, what you hear is that they're looking for ways to build more resilience into their supply chain. They need to simplify it, they need to shorten it and they need to standardize it. That will add costs to the supply chains. Businesses are going to be holding more inventories and their supply chains are not going to be as efficient. That doesn't create permanently higher inflation, because inflation is a perpetual increase in prices, but if there's a higher cost structure for a period of time, that could make inflation more difficult to get down.
That is something that we're watching and we're concerned about, and it is something we're factoring in.
6:25 p.m.
Conservative
6:25 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Chambers.
We'll now move to the Liberals and MP Chatel.
MP Chatel, you'll be the final questioner.
6:25 p.m.
Liberal
Sophie Chatel Liberal Pontiac, QC
Thank you, Mr. Chair.
I have a quick question.
In Quebec, B.C. and other provinces, federal carbon pricing does not apply. Can you clarify what the cost of inflation would be in those provinces if, as suggested by the Conservatives, there was no carbon pricing?
6:25 p.m.
Governor, Bank of Canada
I don't have numbers for every province. I can't give you that number. I don't have the calculation by every province.
6:25 p.m.
Liberal
Sophie Chatel Liberal Pontiac, QC
If you cancel federal carbon pricing that does not apply in Quebec, because Quebec has its own system, it will have no impact in Quebec on any inflation. It cannot, because carbon pricing at the federal level does not apply to Quebec.
Even if you cancel federal carbon pricing, it cannot have any impact, because it doesn't apply now. Would you agree with that?
6:25 p.m.
Governor, Bank of Canada
Different provinces have taken different routes, since provinces have the ability to impose their own measures, so yes.
November 23rd, 2022 / 6:25 p.m.
Liberal
Sophie Chatel Liberal Pontiac, QC
Thank you.
I thought it was important to make that point, because in my perspective, and that of every Quebecker, especially with the pricing on pollution, what is being proposed by the Conservatives on cancelling the carbon pricing is irresponsible, and it will undermine all of the effort made by the Province of Quebec. Carbon pricing was made to create a level playing field among provinces, so that when there's an effort made by one province, it's not cancelled by other provinces.
Thank you for the clarification.
My colleague was talking a bit about something I'm very interested in, which is the inflation on food pricing. Even if we stabilize the economy and we get to a 2% inflation rate, I'm concerned that when it comes to food prices—given that many regions in the world are facing permanent drought and recurring weather patterns—it's not favourable to agriculture. We've seen it over and over in the last couple of years, and the predictions by experts and scientists were not great.
You talked about the river drying up and creating supply chain issues in Europe and the United States. The St. Lawrence River had a bit of a warning last summer as well. I'm concerned that if we do nothing about pollution and reducing our greenhouse gas emissions, we'll see even more of that.
Will that create permanent inflation on food?
6:25 p.m.
Governor, Bank of Canada
Well, we're not climate experts. The climate experts are doing a lot of analysis, and I will leave it to them to give us an analysis of what the effect will be on harvest. I think we've seen that with more variable weather patterns, we're getting more variable harvests. That certainly does affect food prices.
From our perspective of monetary policy, I can tell you what we're doing. We're doing a couple of things.
We need to understand that better in order to conduct monetary policy. If weather disturbances are going to be more frequent, then that will affect agriculture. It could affect transportation. Those are things that we're going to have to factor in. Because there's a lot of uncertainty, we have been doing scenario analysis. We don't have a forecast, but you can put together scenarios. These are based on global scenarios that have been worked out, and then we customize them to Canada.
We will be working to figure out what that could mean for monetary policy. That is something that is on our work agenda.
6:30 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Chatel.
On behalf of the committee, let me thank you, Governor Macklem and Senior Deputy Governor Rogers, for answering a multitude of very detailed questions, from all members here, with very detailed answers on monetary policy.
Members, before we adjourn, on Monday we have the Deputy Prime Minister and Minister of Finance coming in for the first hour. For the second hour, it's been suggested that we possibly have the PBO come in, if members are good with that. I see everyone's head shaking in the right direction. Okay. We'll look to invite the PBO to our committee here for Monday.
Again, Governor and Senior Deputy Governor, thank you very much for your appearance. We always like having you here and answering the many questions from the members. We appreciate it.