Evidence of meeting #37 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was productivity.
A video is available from Parliament.
Liberal
Jake Sawatzky Liberal New Westminster—Burnaby—Maillardville, BC
I'll try to keep it brief.
Governor, you said that you were encouraged by the federal government's efforts to diversify. That's been a significant focus, with 20 new economic and security partnerships. How do you assess the impact of Canada's trade diversification on global shocks and inflation volatility?
Governor, Bank of Canada
I probably have about 20 seconds.
We've talked for some time about the benefits of diversifying our trade. Our trade is very concentrated with the United States. Over history, when there has been a problem with it, it has really affected us.
We're dealing with a problem right now. It's not the first one. We've had these problems before. We haven't actually succeeded in diversifying our trade more. There's never been a better time to do it than now.
Liberal
The Chair Liberal Karina Gould
That concludes the time for this round.
Thank you, Governor and Mr. Sawatzky.
We will continue now with Ms. Cobena for five minutes.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Thank you, Madam Chair.
Just to wrap up that thought of ours, Deputy Governor Rogers, you mentioned that higher fuel prices as an input mechanism lead to an immediate one-time impact on inflation. Along that train of thought, would you then agree that removing all three federal gas taxes would provide immediate relief from inflation for Canadians at the pump?
Senior Deputy Governor, Bank of Canada
I think the governor just answered that question. We talked about the measure the government recently announced on the excise tax. Our estimate is it will take about 0.2% off inflation for the time it's in place.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Moving on from that, I have a question for the governor.
Mr. Macklem, we know that the government's sovereign wealth fund was not included in the debt projections in the spring economic update, despite the announcement by the Prime Minister that it would be funded by $25 billion of debt.
I'm just wondering if you were consulted on the wealth fund.
Governor, Bank of Canada
No. I'm not usually consulted on the government's fiscal measures.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Well, this is $25 billion of additional debt coming onto the books, and the people who would fund that were not consulted.
Governor, Bank of Canada
As to “funded”, we don't “fund” the government. We would issue the debt, but it's going to be the investors, the buyers of the debt, who would fund it, not us.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
We're trying to get an understanding of whether this $25 billion—which is a big number—is going to be funded through printing money, issuing bonds or however else.
Governor, Bank of Canada
It's not going to be funded through printing money. That much I'm very confident about.
Conservative
Governor, Bank of Canada
I have not seen the plans on the funding of it either. I have not spoken to the government about it yet.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
More generally speaking, then, for $25 billion of debt at the current rate, could you give us a rough estimate of how much that would cost in interest?
Governor, Bank of Canada
I don't have the number in front of me. It's going to depend on whether you go short term, longer term—
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Yes, that's right. I understand. It depends on the term, but do you have just a rough range of what that cost will be?
Governor, Bank of Canada
I don't have that number in front of me. If you want some calculations, we can do some for you, but I actually think—
Conservative
Governor, Bank of Canada
It's really a question for the government. The government has announced the plan. The government's going to need a funding plan to go with that. It's really a question for them.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
Could you submit your rough calculations, though, to the committee?
Governor, Bank of Canada
I think you should ask the Department of Finance for those calculations.
Conservative
Sandra Cobena Conservative Newmarket—Aurora, ON
We know that inflation on essentials such as food is rapidly spiralling out of control. We saw in March alone that food inflation was 4.4%, nearly double the headline inflation of 2.4%. Grocery prices have increased 22%. I now hear all the time from people of all backgrounds in my riding that they dread taking a trip to the grocery store.
How does the cost of food factor into your decision to increase or maintain interest rates?
Governor, Bank of Canada
First of all, I just want to underline the challenge of food price inflation. Food prices went up a lot in 2022-23. Food price inflation actually did come back down, but the prices didn't come down. When you go to the store, you pay prices, and that's what people are feeling. In the last number of months, you've seen a resurgence of food inflation. It has been running around 4% now for a number of months. As the senior deputy governor mentioned, we had been hopeful that a number of the global factors that had boosted it were starting to fade and that you would see it come back down. However, now with the war in Iran, there's a new set of factors. You have higher energy prices. You have potentially higher fertilizer prices. So it's difficult to say with confidence that food price inflation is going to come down quickly. That is affecting every Canadian.
These factors—the war in Iran, higher global fertilizer prices—are not things we can control. The only thing we can do is to make sure that if food prices are higher, some other prices have to be going up less, so that overall inflation is 2% and the whole basket of people's goods isn't all going up faster. But, yes, I understand—