The Trudeau administration is not using all means to protect Canadians from inflation, the economist says
The economist Thomas Sowell once said that inflation is just a way of taking money away from people without having to openly levy taxes. But there’s no need to say that to Annette Murray and her husband Tom McGregor.
The Vancouver couple, aged 64 and 59, live on a disability pension that totals $37,000 a year. Or earlier. With higher prices for food and medical supplies, the two now rely on their savings to make ends meet.
“It keeps us up at night wondering how things are going to play out,” Murray told CBC The house. “Our savings, if this continues, will not be enough to sustain us into old age. And that’s a really scary prospect.”
The latest figures from Statistics Canada do not give hope. Inflation rose to 6.8 percent last month, the highest rate in 31 years. The prices for essentials are all increasing: fresh vegetables by 8.2 percent, meat by 10.1 percent, bread by 12.2 percent.
Factor in the rising cost of fuel, and for many it’s like trying to squeeze the positive ends of two magnets together to make ends meet.
Prime Minister Trudeau and Treasury Secretary Chrystia Freeland have reminded people that the factors driving inflation are not entirely within their control. Backlogs in the supply chain and Russia’s invasion of Ukraine are the main reasons that life is becoming increasingly unaffordable for Canadians – especially those on a regular income.
One expert said the government’s talking points about the causes of inflation were “a bit of an excuse”.
“It’s a half-truth at best,” said Vivek Dehejia, an economist at Carleton University, during a panel discussion in this weekend’s issue The house about what can be done to reduce the impact of inflation on Canadians.
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Government had plenty of warning about inflation risk: economist
Dehejia said inflationary pressures were evident well before the war in Ukraine, fueled by a combination of record low interest rates, pandemic stimulus spending and pent-up consumer demand.
“I think there was a certain level of complacency, I don’t know what the right word is, because inflation has been so low for decades,” he said. “We had forgotten what it was. Now it’s back with a vengeance.”
But that doesn’t mean the Trudeau government lacks the tools to mitigate the effects of inflation.
Sohaib Shahid is Director of Economic Innovation at the Conference Board of Canada. He said that while he understands the federal government is in a difficult position, he believes Freeland could have taken steps in its spring budget.
“There was no mention of giving Canadians some breathing space in the form of targeted and temporary tax cuts, despite having more fiscal space than previously forecast,” he said.
Other countries, including the UK, have done so, he said. For example, Alberta has eliminated the province’s 13 percent sales tax on gasoline sales.
“I would start there. And next I would move on to eating,” he said. “And the reason I’m saying that is because, again, I’m looking at this mainly from a low-income and high-income perspective. Low-income households spend 15 percent of their total annual spending on food, while high-income households spend only half.”
Affordability is becoming an obligation for governments. And the federal opposition parties are taking the opportunity to take action. In the House of Commons this week, the New Democrats and Conservatives took turns accusing the Liberals of being out of touch with Canadians.
“Food costs are up 9.8 percent and wages are up just 3.3 percent,” NDP leader Jagmeet Singh said during Question Time on Wednesday.
“All of this means workers are taking massive pay cuts. Meanwhile, oil and gas companies are enjoying massive profits. The Prime Minister can do something instead of just watching.”
It’s 1981 again: Albas
Conservative MP Dan Albas took both food and gas prices the following day.
“The last time we saw food prices rise 10 percent was in 1981, when another great tax and spending Liberal prime minister was in office. What was his name again? It’s like deja vu,” he thundered.
“With the Liberal government apparently having no ideas on how to improve gas prices, will they at least reconsider the Conservatives’ proposal to exempt GST on fuel? Will they at least do so?”
The prime minister and other cabinet ministers acknowledged Canadians are struggling but made no promises of tax breaks. Instead, they referenced previous spending initiatives to help Canadians.
“We know that inflation affects the lives of Canadians, and that’s why we’ve increased our budget,” Tourism Minister Randy Boissonnault said in response to Albas.
“I know the Conservatives don’t like that we’ve been supplying for Canadians for seven years. I know it hurts their sensibilities, but the reality is we have in our budget dental care for Canadian families, a doubling of first-time loan assistance for homebuyers, a multigenerational home renovation tax, and $500 for those who who care about housing affordability.
That’s no consolation for Sarah Law, a 22-year-old graduate student in Vancouver who wonders if she can afford to live in her hometown much longer. She worked multiple jobs through college to pay rent and groceries, and is pinching pennies because she estimates she’s spending $500 more a month than she did a year ago due to inflation.
“I made a pact with myself that I would save $300 every month. That’s not possible anymore. I have to constantly take money out of my savings even though I work more,” she said.
“Not knowing how to make ends meet is absolutely terrifying.”
And it probably won’t get any better in the short term.
Sohaib Shahid said he does not expect inflationary pressures to ease.
“I really don’t see any major factor happening or taking place in the coming months that will push inflation down permanently,” he said. “I expect energy prices to continue trending higher at least until the end of the year, supply chain disruptions going nowhere at least until next year. So things are pointing to higher inflation.”
Carleton’s Vivek Dehejia agrees – despite signs that the Bank of Canada plans to continue raising interest rates steadily without slowing economic growth to a snail’s pace and triggering stagflation.
“I think unless the bank really hikes rates, we’re looking at higher inflation for the next year or two,” he said. “And that, in turn, is very, very tricky.”