Inflation Is ‘Increasingly’ Homegrown, Says Bank of Canada Governor

Bank of Canada Governor Tiff Macklem ponders a question at a press conference in Ottawa on June 9, 2022. The Canadian Press/ Patrick Doyle

The Liberal government has been calling inflation a “global phenomenon,” but Canada’s central bank governor says that it’s “increasingly” a Canadian affair.

“Some of this inflation reflects global developments that we don’t control but inflation in Canada increasingly reflects what’s happening in Canada,” Bank of Canada Governor Tiff Macklem told the Halifax Chamber of Commerce in a speech on Oct. 6.

“The demand for goods and services here at home is running ahead of the economy’s ability to supply them.”

Macklem explained that pandemic lockdowns caused the rate of inflation to fall below zero, and prolonged deflation was a “real concern,” hence the bank provided “exceptional monetary support.”

This, combined with “exceptional fiscal stimulus,” helped avoid a deeper recession and produced the “fastest recovery ever,” he said.

Macklem said businesses are struggling to find enough workers, and higher prices caused by international supply chain issues has now broadened to many services.

“All the signs today point to an economy that is clearly in excess demand,” he said.

The Conservative Party and its leader Pierre Poilievre have been constantly saying the government and the central bank are mainly responsible for inflation, through deficit spending and creating new money.

Meanwhile, the Liberals have routinely qualified inflation as a “global phenomenon” caused by the pandemic and Russia’s invasion of Ukraine.

“We cannot compensate every single Canadian for rising costs driven by a global pandemic and by Putin’s invasion of Ukraine,” Finance Minister Chrystia Freeland told the House of Commons finance committee on Oct. 3.

“We know how much Canadians are struggling with inflation, which is a global phenomenon,” said Prime Minister Justin Trudeau in the House on Oct. 5.

Despite calling it a “global phenomenon,” the government also says it’s being careful with its proposed inflation relief measures, recognizing that government spending can make matters worse.

“And so as Canadians cut back on costs, so, too, will our government. We will do our part to not pour fuel on the fire,” Freeland said before the committee.

Inflation in Canada, as measured by the Consumer Price Index which calculates the price of a basket of goods, was at 7 percent in August, a drop from 7.6 the previous month.

Not all advanced economies are going through rough bouts of inflation—Japan’s latest reading is at 3 percent and Switzerland’s is at 3.3 percent—but many are.

Inflation in the Netherlands was 14.5 percent in September, a jump of 2.5 percent over the previous month. While rising energy prices are having an impact, data indicates the money supply in the Euro Area is also steadily increasing.

The Bank of Canada has been reducing the amount of stimulus in the Canadian economy through quantitative tightening since early spring.

Its opposite, quantitative easing, is what the central banks used to bolster the economy by purchasing government bonds and securities from financial institutions to keep interest rates low and encourage lending.

The Bank of Canada’s next rate announcement is planned for Oct. 26. It has raised rates steadily since March to curb inflation, from 0.25 percent to 3.25 percent currently.