By Joseph Quesnel
Canadians likely remember Prime Minister Justin Trudeau’s famous reply during the recent federal election campaign where he said that he doesn’t think about monetary policy but about families, as if the first one doesn’t obviously impact the other.
Not only does this suggest a basic economic ignorance on the part of our prime minister, but it also shows a certain tone deafness to the financial suffering many average Canadians are experiencing. Although this comment was said in 2021, one thinks it would be haunting him now. Or at least, it ought to be.
As run-away inflation affects everything – including housing prices – it would be a good time for him to start thinking about monetary policy.
The first step is to stop misdiagnosing the problem and stop deflecting. The federal government needs to stop blaming the Russian invasion of Ukraine for runaway inflation and start looking at its addiction to spending. The affordability crisis is now affecting housing as it pushes up housing prices for Canadians who are already experiencing a shortage in accommodations in many parts of the country.
Beyond housing prices, the Bank of Canada is concerned that certain mortgage holders may experience significant jumps in their monthly mortgage payments over the next few years, up to 45 per cent in some cases.
Ottawa needs to focus less on global events beyond its control now and look toward monetary and fiscal policies that it can control, starting with federal spending.
If the government wants to also look at its own policy choices, it could also see how activist-driven policies to curb domestic oil and natural gas production has not helped as energy prices go through the roof. The federal government is unwilling to give Canadians relief from gas taxes to relieve the strain.
While there are a few factors that explain this upward pressure on prices (including the ongoing invasion’s impact on energy prices), the increase in the money supply through rampant spending is one of the major causes. Economists would say that without economic and supply-and-demand pressures, the price of goods remains the same. If the only change introduced into the economic system is the addition of money, the price of goods will rise.
Mainstream media are starting to notice how inflation is making housing so much worse. One media account focused on how couples with six figure incomes in Toronto are being priced out of the housing market.
One could argue that that additional government spending for individuals and businesses was justified to help us get through the pandemic, especially considering the government imposed those restrictions in the first place. However, given the lifting of restrictions in all provinces and
the suspension of some at the federal level, there is no longer any compelling rationale for additional spending.
While inflation can be controlled by the central bank’s manipulation of interest rates, private sector banks are saying that the central bank’s monetary policies are not enough. Scotiabank – hardly known for any partiality towards any governing party – is cautioning that federal spending is interfering with Canada’s inflation recovery.
The report reads: “In effect, high levels of fiscal spending will necessitate an unnecessarily large crowding out of private spending,” they said. “Less government consumption would lead to a lower path for the policy rate and take some of the burden of adjustment away from the private sector.”
Recently, Finance Minister Freeland also declared that the government seems to be relying solely on the central bank to control inflation against the advice of many. The tone deafness of the government seems to extend beyond the prime minister.
This tendency on the part of the prime minister and other members of his cabinet to engage in globe-trotting for photo ops is exactly how to be seen as a sanctimonious elitist who is out of touch with the lives of average Canadians.
This is not the first time the government revealed itself to be out of touch.
During the convoy protests, the prime minister and the government were discovering not all Canadians experienced the pandemic the same way. Many lost their jobs and were facing suffering from the effects of various restrictions.