Price Inflation: Ottawa Must Do Its Part
Helping, or at least, not harming. Ottawa should take inspiration from this principle of medicine with regard to the Bank of Canada’s fight against inflation.
On Wednesday, the Bank of Canada announced that it was raising its policy rate by 25 basis points, bringing it to 4.75%. The last time it was this high was back in 2007.
When the policy rate goes up, interest rates in general go up, including mortgage rates.
If the central bank is opting to raise rates again, it’s because its indicators are flashing red.
According to Statistics Canada data, consumer price inflation was on the rise again in April, climbing from 4.3% to 4.4% on an annualized basis. While this is a modest increase, it represents a turnaround after having fallen for several months.
To this must be added the data on the economic vitality of the country and on consumption, which point to overheating, suggesting an upward trend in the price level.
Whereas the central bank is trying to calm these waters by raising its policy rate and adopting tight monetary policy, our federal government is doing the opposite.
It is stimulating demand and consumption by spending $40.1 billion more than it collects in revenues this year.
Or again, it is paying billions of dollars to create jobs in regions where there is already talk of a labour shortage.
Is it too much to ask of Ottawa that it limit its spending so as to help the Bank of Canada fight inflation, or at the very least, not hinder its efforts?