Finance Committee on May 4th, 2026

[The Chair, Liberal, Karina Gould]

I call this meeting to order.

Welcome to meeting number 37 of the House of Commons Standing Committee on Finance.

I would like to take a quick minute to introduce two of our new colleagues, MP Danielle Martin and MP Steeve Lavoie.

We appreciate your joining us today.

I'm looking forward to having you here.

Pursuant to Standing Order 108(2), the committee commenced its study of the report of the Bank of Canada on monetary policy.

I would like to welcome back our witnesses, Tiff Macklem, Governor of the Bank of Canada, and Carolyn Rogers, senior deputy governor for the Bank of Canada.

You will have five minutes for your opening remarks. It's over to you, and welcome back to committee.

[Tiff Macklem, Governor, Bank of Canada]

Good afternoon to everyone on the committee.

I'm very pleased to be here with the senior deputy governor to discuss our monetary policy report as well as last week's interest rate decision. Last Wednesday, the governing council maintained the policy rate at two and a quarter per cent, and we really have three main messages.

First, Canada is being buffeted by global events and geopolitical uncertainties, but our economy is growing, and it's expected to continue to grow.

Second, after more than a year and a half with inflation close to the 2% target, higher global energy prices are pushing inflation up. The surge in gasoline prices combined with still-elevated food price inflation are squeezing more Canadians.

Third, monetary policy is focused on ensuring that the jump in energy prices does not turn into persistent inflation. We are helping the economy to adjust to global headwinds while keeping inflation low and stable over time.

Let me expand on the economic outlook, the risks and the implications for monetary policy.

Since our last forecast in January, the war in the Middle East has sent global energy prices sharply higher. It has increased financial market volatility and disrupted shipping for fertilizer and other commodities.

This has lowered the outlook for global growth while boosting inflation. In Canada, growth looks to have resumed after contracting at the end of 2025. Consumer and government spending are contributing to growth, while US tariffs and trade uncertainty are weighing on exports and business investment.

The labour market is soft, with the unemployment rate remaining in the 6.5% to 7% range. This rate reflects both weak hiring and fewer job seekers. In our forecast, the Bank of Canada projects the economy will grow 1.2% in 2026, 1.6% in 2027 and 1.7% in 2028. The growth will track the gradual recovery of growth in exports and business investment.

Before the outbreak of the war, we expected inflation to stay close to the 2% target, but sharply higher gasoline prices are now pushing up inflation. Consumer price index inflation rose from 1.8% in February to 2.4% in March. So far, there is little evidence that higher oil prices have fed through to other goods and services prices more broadly. However, it is too early to tell whether these impacts will materialize. We will be watching this closely. Based on recent market expectations for oil prices, inflation should reach around 3% in April and ease back to target by early next year.

The Bank of Canada is committed to keeping inflation close to the 2% target over time. The monetary policy needed to achieve this will depend importantly on what happens with the Canada-U.S.-Mexico agreement on trade, the conflict in the Middle East, and the impacts of U.S. tariffs and energy prices on our economy. The governing council agreed to look through the war's immediate impact on inflation but, if energy prices stay high, we will not let their effects become persistent inflation.

Our baseline forecast assumes that oil prices will come down and that U.S. tariffs will remain at current levels. If this holds true and the economy evolves broadly in line with the base case, changes in the policy rate can be expected to be small; however, uncertainty is unusually elevated, and there are many possible outcomes. Monetary policy may need to be nimble.

If the United States imposes significant new trade restrictions on Canada, we may need to cut the policy rate further to support economic growth. Alternatively, if oil prices continue to increase, and particularly if they remain elevated, the risk that higher energy prices become ongoing generalized inflation increases. If this starts to happen, there may be a need for consecutive increases in the policy rate.

Of course, these are not the only possible outcomes. As the outlook evolves, we stand ready to respond as needed.

With that, Chair, we'd be pleased to take the committee's questions.

[The Chair, Liberal, Karina Gould]

That's great. Thank you so much, Mr. Macklem, for those opening comments. I think you highlighted very well the uncertainty that the world, including Canada, is facing. We appreciate your being here today to have this conversation.

We will begin now with Mr. Hallan for six minutes.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Thanks, Chair.

Thank you, Governor and Deputy Governor, for being here.

Governor, in November, the last time you were here, you compared cost of living and productivity as the same things. Since your last visit here in November, have you seen any meaningful change in productivity or cost of living?

[Tiff Macklem]

We have revised our outlook for productivity growth upward a bit, going forward, relative to what we had the last time we were here.

There are a few things going on. One is that the economy is working through an adjustment to higher U.S. tariffs, and that will temporarily depress productivity growth. Then it comes back.

The new element is that AI is increasingly being deployed by Canadian companies. Our assessment is that this will boost productivity growth going forward, so it will be a little bit higher.

Certainly, affordability remains a big challenge for Canadians, and the war in Iran, which has raised gas prices for Canadians, is going to make that tougher.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

When it comes to housing, which direction do you see affordability going?

[Tiff Macklem]

Is that the near term or the longer term? In the longer term, I think there is capacity for affordability to improve.

The housing market is fairly weak. Prices have been going sideways or down and incomes are coming up. Over time, that should improve affordability, if this continues, but it's not going to change overnight.

This problem has built up over a decade, and it's going to take some years before it improves meaningfully for Canadians.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Canadians are still paying higher housing costs, grocery costs and fuel costs. We know that. Are you seeing any of that pressure going away, given the current...? Is there anything you're seeing from policy? Do you think any of those things are going to change meaningfully anytime soon?

[Tiff Macklem]

Let me say a couple of words about affordability.

As I mentioned, the war in Iran has caused global oil prices to go sharply higher. They have continued to go up since we published our monetary policy report. In Canada, the most direct impact is that it's pushing our gasoline prices up. We've all filled up our cars and we've seen the prices. That's impacting every Canadian and, particularly for lower-income Canadians, that's a big deal.

I can't predict what's going to happen with the war in Iran, but the market expectations are that oil prices will be coming down. We'll see what happens, but certainly it will help if that happens.

We can't control that. What we can control is the use of monetary policy so that higher energy prices don't spread to other goods and services prices and become generalized ongoing inflation.

That is our commitment. We will bring inflation back to 2% and keep it close over time.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Would you agree that affordability isn't the best it's been in a decade?

[Tiff Macklem]

Affordability has been affected by two things. Coming out of the pandemic, there was a burst of inflation. We got inflation back down, but price levels remained higher, and that really highlights the long tail that high inflation has.

The other part of it is incomes. If you want to improve affordability.... We're not going to lower all prices. That would really weaken the economy. No one would like that.

We're going to keep inflation low and stable. If you want to improve affordability, you really need to grow incomes, and that comes down to growing productivity and getting the economy working.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Just one more time, with just a yes or no, do you think affordability today is the best it's been in a decade?

[Tiff Macklem]

I think there's an affordability challenge in this country, but I'm not going to put a time frame on it of five years or 10 years. There's a clear affordability challenge in this country. There's no question of that.

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Governor, table 2 in your report shows that real GDP growth is being fuelled by government spending or government growth. Business investment and exports are remaining weak.

Is this an indication of the private sector being weak? Does it show that there's a weak economy?

[Tiff Macklem]

The biggest contributor to growth is household spending, consumption. You're right; government spending is up, particularly at the provincial level. You're seeing big provincial infrastructure projects. Spending is also up at the federal level. A lot of that is new defence spending. That is contributing more to growth in the economy.

Here's the table. If you look at the precise numbers for 2026, you see that government is contributing 0.7 percentage points to growth. Consumption is at 0.8—

[Jasraj Singh Hallan, Conservative, Calgary East, AB]

Would you agree that those things are being fuelled by debt, though?

[Tiff Macklem]

Well, you saw the spring economic update. There is a deficit, yes. Part of it is being paid for by debt, but the bulk of it is not.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Hallan. That concludes your time.

We'll continue now with Mr. Leitão for six minutes, please.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you, Madam Chair.

Good afternoon, governor and senior deputy governor. Thank you both for being here.

I want to get back to monetary policy, which is the subject at hand. You have the report and you decided not to change the policy rate. You stated that there are risks on both sides and that you are going to monitor the situation closely.

Do you think the risks you identified are symmetrical? Is any one risk greater than the other risks?

[Tiff Macklem]

Frankly, it’s a bit hard to say. The greatest risks right now, especially with respect to the Canada-U.S.-Mexico agreement, trade and the war in Iran are not economic risks as such, but rather, they are geopolitical risks. It's hard for us to assess the probability of what will happen exactly. Ultimately, monetary policy will reflect events as they unfold.

As I said, if the United States imposes new restrictions on trade with Canada, that could make our economy weaker and exert downward inflationary pressure. Should that happen, we may need to bring down our policy rate. however, if oil prices go up, and most importantly, stay high, there is a strong probability that inflation will become more persistent. If that happens, there may be a need for consecutive increases in the policy rate.

As you mentioned, we are monitoring the situation closely and stand ready to respond as needed.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you.

Correct me if you don't share my point of view. There's uncertainty around our relations with our neighbour the United States and around U.S. tariffs, which are becoming increasingly unpredictable. A revised structure for calculating tariffs on goods containing steel and aluminum came into effect on 6 April.

I have the following impression, and I'd like to hear your perspective: Until recently, most Canadian businesses, with the exception of the auto sector, appeared to have navigated this situation successfully, but now, the risks are much higher. Uncertainty and our unpredictable neighbour in particular mean that there's actually a very significant risk that businesses will be forced to shut down. Indeed, several large furniture businesses in Quebec recently ceased operations.

Would you say that the risks of the trade war getting worse are significantly higher now than a few months ago?

[Tiff Macklem]

The risks have been high for the past few months. As you noted, trade policies with the United States are somewhat unpredictable.

We have an agreement with the United States. If nothing happens, this agreement will stay in place, and we'll see what happens when we the time comes. I do agree that with the Canada-U.S.-Mexico agreement, or CUSMA, up for review this summer, the United States will issue all kinds of threats and there will be a great deal of talk. We'll see what will happen. There are several possibilities. I would agree that there is uncertainty weighing on all businesses, not just those that are already impacted by U.S. tariffs.

Nevertheless, I would like to address two issues. What we're seeing is that businesses are somewhat resilient. Our latest business survey shows increased uncertainty, and it will probably remain high.

However, businesses expect to continue. They need to move forward with plans. We have seen that most businesses intend to boost their investments and are planning for that. It's not going to be a significant increase, but nevertheless, they are adapting and adjusting.

[The Chair, Liberal, Karina Gould]

hank you, Mr. Leitão. Your time is up.

You have the floor for six minutes, Mr. Garon.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Madam Chair.

Welcome to the committee, governor and senior deputy governor.

Not so long ago, Canada was probably the least exposed country to U.S. tariffs because of CUSMA. The government used to say, and rightly so, that 85% of Canadian exports were protected under CUSMA.

However, the method for computing tariffs changed on 6 April. In a recent note, Mouvement Desjardins assessed that a quarter of exports in central Canada, meaning Quebec and Ontario, could be subject to 25% tariffs.

Right now, that is a clear violation of the spirit of CUSMA. In the monetary policy report, you state that Canada's exposure to tariffs was around 5%, so it has gone down a bit.

Did you take April's executive order into consideration? I'd also like to know whether the Bank of Canada has evaluated the volume of Canadian exports that now face a 25% tariff.

[Tiff Macklem]

We're monitoring exports closely. As you noted, we estimate that average tariffs for Canadian exports are about 5%. It was slightly higher in the last report, but it has improved slightly.