Finance Committee on Feb. 16th, 2023

[The Chair, Liberal, Peter Fonseca]

MP Baker, you have one minute.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Governor and Deputy Governor, how does our inflation rate compare currently with our comparable colleagues? I'm think of G7 countries like the U.S. and Europe.

[Tiff Macklem]

Well, across the G7, I think we have the second lowest. Japan is lower than us. I think we're the next.

But what I'd underline is that it's too high. It's too high pretty much everywhere. It is coming down, but we are acutely aware that we have a long way to go here.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

How does our economic growth compare to that of those same countries?

[Tiff Macklem]

On both fronts, Canada is doing reasonably well on an international comparison basis. Growth has been reasonably strong in Canada.

If you compare it to other countries one quarter to the next, you're going to see some move ahead, but overall, our economy has performed reasonably well. We've had the strongest recovery on record and, yes, we are dealing with the inflationary consequences of that, but inflation.... It's too high, but it's at the lower end of where most of the countries are, and growth has been in the upper group.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we'll go to the Bloc and MP Ste-Marie, please, for two and a half minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I have two questions.

First, Mr. Macklem, when you last appeared before the committee, you explained to us that the competitive system was not working because businesses were passing on the price increases for inputs to their customers.

Can you tell us if anything has changed with respect to the competitive system?

[Tiff Macklem]

I gave a speech in Quebec City a few days ago, and I showed them a very nice chart—well, nice for economists, anyway—on the distribution of price changes.

Normally, the curve representing distribution is high and closely centred around 2. Last summer, the curve was lower and wider, meaning that the distribution of price changes was quite dispersed, and it was centred further to the right on the chart.

Right now, the curve lies between its usual position and last summer's. It's moving back over, and that signals a return to normal. We're heading in the right direction but we're still a long way from normal. We're monitoring this very closely.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

The Central Bank of Australia has announced that it's removing the image of a British monarch from its banknotes.

Are you planning to do the same?

[Tiff Macklem]

That's a decision for the Department of Finance to make. We're more concerned about the security of banknotes. It's up to the government to decide who's represented on the bills.

Legally, there's no reason not to continue having the image of the Queen or King on bills.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

Thank you, Mr. Macklem.

Now we'll go over to MP Blaikie for two and a half minutes.

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

Thank you very much.

If the government were to provide a debt amnesty to low-income Canadians who owe for having been ineligible for the CERB payments they received, would the bank interpret that as a fiscal measure contributing to aggregate demand or neutral with respect to aggregate demand?

[Tiff Macklem]

We have not analyzed that, so I really can't give you an answer. If that happens, we will analyze it and we'll build in, but I don't know in front of me what the magnitude of that is.

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

Given that the money's been spent, and these are folks who don't have money available to repay, in what way could it contribute to aggregate demand?

[Tiff Macklem]

Well, I don't know. I haven't analyzed it and I'm not going to give you an answer on something I haven't analyzed.

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

Earlier you said that the one-time impact of eliminating the carbon tax would be a 0.5% reduction in inflation. Is that a net amount, or do you think that it's possible that eliminating the carbon tax all in one go could also have an upward effect on aggregate demand—

[Tiff Macklem]

That is just purely an arithmetic calculation. It's what economists would call “everything else equal”. Inflation is at 6.3% now. The arithmetic impact of that would be that it would be 5.8% if you eliminated the carbon tax tomorrow.

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

Okay, and that's without doing any math on the effect of—

[Tiff Macklem]

To the extent that that has other effects on the economy then, yes, that would have a second-round effect and you'd have to take that into—

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

Then the maximum—

[Tiff Macklem]

Again, we haven't done an analysis of that, so I don't—

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

Fair enough, but if you allowed for the effect of that elimination on aggregate demand, the 0.5% is a maximum possible benefit. It could be lower, depending on how people spend the money that they would—

[Tiff Macklem]

It would depend on what happened, yes.

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

Okay. Thank you very much.

With the time I have remaining, I'm curious to know whether the bank has any thoughts on how spending in the housing market, particularly building new housing supply by government, affordable units, would be interpreted by the bank, in terms of its possible contribution to aggregate demand, or not. There's a complicated effect in that it creates demand in some areas over a short period of time, but it also helps alleviate supply problems over longer periods of time.

What are some of the factors that government might consider in order to spend in the right way, from the bank's point of view, and not have a net higher contribution to aggregate demand?