You can’t fix inflation with more spending. That will just make it worse.
The latest federal budget is set to keep inflation elevated, making things even tougher for the Bank of Canada to get price increases back within their target range.
According to the quarterly Bank of Canada consumer expectations survey, many Canadians are putting blame on the federal government for hampering the fight against inflation.
Here is the overview of their findings:
“Expectations for inflation one to two years ahead have fallen but remain well above their levels from before the COVID-19 pandemic. Consumers’ expectations for growth in prices of some goods have edged down, although their price growth expectations for services such as rent have remained high.
Most consumers think the Bank’s ability to get inflation back to target is hampered by high government spending and challenges with supply chains. Many people believe supply chain issues will be resolved in the next two years, and some think prices for affected products will fall. Those who expect high government spending to impact inflation believe it will continue to do so for a long time.
High inflation and rising interest rates are putting pressure on consumers—and particularly on mortgage holders. In response, consumers expect to spend less on discretionary services—such as travel, restaurant meals and other social activities—than they did over the last 12 months.
Most Canadians see a recession as the most likely scenario for the economy in the next 12 months. But many are uncertain about where the economy and labour market are going. Consumers who are more uncertain are planning to spend less and save more as a precaution.
Despite uncertainty about the economy, workers view the job market as strong. Respondents, particularly those not satisfied with their current job, are confident they can find new work. Workers’ expectations for private sector wage growth are also near a survey high. But wage growth expectations remain below inflation expectations, and most workers do not see their wages catching up with recent inflation over the next year.”
According to BNN Bloomberg, BMO rates and macro strategist Benjamin Reitzes says elevated federal spending – along with higher spending by some provinces – is countering Bank of Canada efforts to get inflation under control:
“The federal government’s decision to add even mildly stimulative policies to this year’s budget, in addition to similar actions by some provincial governments, works counter to the Bank of Canada’s desire to dampen excess demand and bring inflation back to target.”
Is the budget balancing itself?
Justin Trudeau thinks budgets balance themselves.
He thinks economies need to grow from “the heart out.”
Match that naivety with his obsession with centralized power and control, and you have a dangerous mix.
To get inflation under control the government needs to reduce its role, reduce spending, and get rid of policies like the carbon tax that disincentivize real productivity. Trudeau is both ideologically and intellectually incapable of that.
Spencer Fernando
