Finance Committee on May 4th, 2026

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

We know that the debt interest costs, according to the recent spring update, are going to go up by 50% by 2030. They're going to from $50 billion per year up to $80 billion per year. If the interest rates have to be raised because of persistent inflation, what is that going to do to debt interest costs?

[Tiff Macklem]

It depends a little bit on why interest rates have to go up. If the economy is stronger, there's more revenue, people are spending more and that's building inflationary pressures, and the government will be getting more revenue, yes, it will also have higher interest rate costs.

The more worrisome scenario is one where the economy is weaker but inflation is stronger. Then it's tougher on Canadians and it's tougher on governments.

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

Pat's going to take over.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

I can finish out the segment here.

When you say that the savings rates are higher, how is that distributed? For consumer debt, we were told by both of the credit rating agencies in Canada that the number of debtors is not rising, but the amount of indebtedness among existing borrowers is. The people who are in debt are getting deeper in debt across the income spectrum.

Is it a case of the very wealthiest being able to save and everybody else going deeper into debt?

[The Chair, Liberal, Karina Gould]

Unfortunately, that's the time for this round. We'll have to conclude there.

We'll move on to Mr. Turnbull for five minutes.

[Ryan Turnbull, Liberal, Whitby, ON]

It's great to have you both back again. It's always great to have you. I always find the conversation so productive and thorough.

Governor, you said, “there is little evidence that higher oil prices have fed through to other goods and services...more broadly”. I'm quoting from a CBC article, but you also said that today.

What signs should we be looking for as to whether that spike in oil prices is taking broader hold? Can you enlighten us on what we should be looking for as signs and indicators of that?

[Tiff Macklem]

The first point is that it's early days. We actually wouldn't expect to see much broadening this early into the oil price shock. We have measures of core inflation that take out volatile components. The two we've been focusing on are the median and the trim mean. When there's a big change in oil prices or gasoline prices, they get pulled out. If you saw core inflation start to go up, even when it's pulling out the direct effects of higher oil prices, that would be a sign of spreading. That would be one thing we'd look at.

Another thing we can look is at the distribution of price changes. In the monetary policy report, there's a chart of the percentage of components of the CPI that are rising faster than 3%. It has shown recently that it has actually been coming down. It's a little bit higher than historically, largely because food price inflation is high and there are a lot of food components in the CPI, but it has been coming down.

If you started to see that going up, that would suggest that not only are your oil prices going up but a lot of other prices are going up, too. That would be another kind of thing we would look at.

Another thing we look at closely is expectations about future inflation. Right now, people have filled up their gas tanks and they've gone to the grocery store, so they know that inflation has gone up recently. Their perception of inflation and their short-term inflation expectations have gone up, but they remain confident that inflation will come back down. If we started to see some erosion of that confidence and if those longer-term expectations were going up, that would be a real sign of worry that inflation was getting entrenched and that people were starting to believe inflation was going to stay.

There's no single thing that we focus on. We look at a range of indicators, but if we start to see it spreading or if we start to see the persistence going up, we will be starting to think about the need to raise interest rates.

[Carolyn Rogers]

Charts 6, 7 and 8 are the ones you'll probably see show up in future MPRs.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you for that explanation; I think it is helpful to understand.

What would you say is the time frame? You said we wouldn't expect to see it this early, but when would we expect to see it? Would it be by end of summer, perhaps?

[Tiff Macklem]

I wish I could put it on a calendar for you, but it's really not about time; it's about conditions. It's going to depend a lot on what actually happens with global oil prices. It's going to depend on whether companies absorb those prices or pass them through.

There's not a set timeline. It's more a matter of the conditions.

[Ryan Turnbull, Liberal, Whitby, ON]

That's helpful.

Also on page 25 of your recent monetary policy report, you wrote, “Investment growth is expected to strengthen”. Could you possibly explain why you see that strengthening?

[Tiff Macklem]

There are a few reasons.

We do a business outlook survey, which surveys 100 businesses across the country each quarter. We also do a more frequent business pulse survey, which is a digital survey that captures more small and medium-sized companies. After the initial increase in tariffs by the United States and the extreme unpredictability of U.S. policy, we saw investment intentions really fall off. Businesses were understandably nervous about making big investment decisions if they didn't know how much access they would have to the U.S. market.

More recently, I wouldn't say the uncertainty has gone down a lot, but perhaps businesses are getting used to it. I think businesses are recognizing that our relationship with the United States has fundamentally changed. Let's hope we get a new agreement and that it's better than where we are now, but we're not going back to where we were before, so they have to get on with business. You see that in their investment intentions. They're starting to realize, “Okay, we have to get on with business. We have to invest. If we don't invest, we're out of business.”

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Macklem.

We're going to continue now with Monsieur Garon.

You have the floor for two and a half minutes, Mr. Garon.

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

Thank you, Madam Chair.

Mr. Macklem, correct me if I'm wrong, but generally speaking, when it comes to exports, Canada's manufacturing sector prefers having a weaker exchange rate. It's good for export.

I'm on page 19 of the report, where it refers to price increases, but there are also significant increases in natural resource exports. Several sections of the report refer to gold, for example. We also know that our oil exports, among others have gone up.

At a time of uncertainty where many people would like to buy gold, for example, and we're exporting a lot of it, do all of these resource exports have any impact on the exchange rate, which could ultimately have a negative impact on Canada's manufacturing sector and on our manufacturing exports?

[Tiff Macklem]

In Canada, we have a flexible exchange rate. That's a very important aspect of our monetary policy framework. If we didn't have a flexible exchange rate, we would have the same monetary policy as the United States. As such, we allow the exchange rate to fluctuate with the market, which is a deep market with a lot of liquidity.

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

When we export a lot of resources, that has an impact on the increase on the value of the Canadian dollar. Does that have an impact on Canada's manufacturing exports?

[Tiff Macklem]

The exchange rate has an impact on our exports as well as on our imports. With a weaker dollar, exports are more competitive, but imports are more expensive.

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

When we're exporting a significant amount of gold, oil and other resources and faced with the current situation, is there a pressing need to increase our productivity?

Does that compound the challenges related to long-term productivity for businesses in the manufacturing sector?

[Tiff Macklem]

In a more complex world where there are more shocks, particularly supply shocks, the best thing we can do is to boost our productivity. This will enhance our quality of life and strengthen our resilience and ability to respond to shocks.

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

Thank you.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Garon.

We'll continue with Mr. Kelly for five minutes.

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Perhaps now we'll be able to get to the answer.

Just to restate the question as succinctly as possible, we had testimony at this committee that Canadians who are in debt are getting deeper into debt and that they are coping with their debts by exhausting their savings, refinancing their loans and cutting back on other necessities. This was alarming information, and quite troubling. It came from Equifax and TransUnion, and a variety of other witnesses have confirmed this.

If consumption is the main driver of GDP growth and if we already have the most indebted consumers in the G7, is this a concern for future GDP?

[Tiff Macklem]

Canada has had a high level of household indebtedness for a number of years now, and that is a vulnerability for the economy. Certainly, if interest rates go up, it means consumption is more sensitive to increases in interest rates. Obviously, that's something we would take account of, but it is a vulnerability.

Having said that, during COVID, household indebtedness went down quite a bit. Before that, it was on a clear upward trend. It went down during COVID, and if you look at the six years since then, you'll see that it's been fairly stable since then.

As you said, though, this trend isn't equally shared across individuals. We do see evidence consistent with what you said, that people who are in debt have been getting more into debt. It's very concentrated in certain individuals.

Yes, they're in a difficult situation, but it's not the case that households overall are coming into—

[Pat Kelly, Conservative, Calgary Crowfoot, AB]

Thank you for the detailed answer, but my time is very limited. I want to share it with Mr. McLean, so I'll let him go ahead.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, and thank you, Governor.

I saw a quote this weekend that Bank of Canada Governor Tiff Macklem has warned about Canada's huge household debt problem. Some economists believe this is a bigger problem than government debt, which is also skyrocketing, as you know.

On the expectation of interest rates, you've held at 2.25%, yet the spread has gone up by 50 basis points in the last two months.

What's the likelihood that you're going to be able to market debt at the current rates in the foreseeable future, or are we going to face an increase in our interest rates across the board in Canada?