Former Finance Minister Morneau: Inflation Fuelled by Excessive Economic Support During Pandemic

Then-finance minister Bill Morneau rises during question period in the House of Commons in Ottawa on May 26, 2020. The Canadian Press/Adrian Wyld

Former finance minister Bill Morneau says the country’s high inflation rate was caused by an excess of economic support given during the COVID-19 pandemic.

Asked about the “COVID period” in an interview with Harvard International Review published on Aug. 14, Mr. Morneau said, “I believe that we had no alternative but to support Canadians, and support Canadians massively.”

He went on to say that although the “early efforts were appropriate and important,” the support “was larger than necessary” and the efforts “went on for too long.”

“The bigger issue was [that] they went on for too long, and that meant that we put more money into the economy than we needed to. [This] is, of course, one of the reasons that we find ourselves with demand for goods and services that’s in excess of what the economy [could] support as we came out of COVID,” Mr. Morneau said.

“And when demand is in excessive supply, the inevitable result is inflation.”

Mr. Morneau, who was Liberal finance minister from 2015 to 2020, said that while supply chain problems caused by the pandemic and Russia’s invasion of Ukraine were also partially to blame for Canada’s high inflation, qualitative easing by the Bank of Canada (BoC) was a factor as well.

In January, Mr. Morneau said he believed the Liberal government “probably” spent too much on COVID-19 stimulus payments, and said the country needed to be “very cautious given that we know that the economic environment that we’re facing is challenging.”

After the central bank increased the country’s money supply in early 2020, purchasing existing government bonds from banks on the open market, Canada’s inflation rate climbed to a 39-year high of 8.1 percent in July 2022. Throughout 2023, the BoC  increased its primary interest rates to 5 percent to tame inflation back down to 3.3 percent in June.

The bank has disputed allegations that its qualitative-easing policies caused inflation, claiming it was instead caused by a spike in commodity prices, a surge in demand for goods in Canada, and impaired global supply chains.

“We did not print cash to pay for the bonds. We bought the bonds with settlement balances, a kind of central bank reserve, not with bank notes. Settlement balances don’t permanently add to the money supply,” the Bank said on X, formerly called Twitter, in August 2022.

Tories Criticize Central Bank’s ‘Money-Printing’

Conservative Leader Pierre Poilievre criticized the BoC’s fiscal policy during and after the pandemic, saying it engaged in a “money-printing orgy“ that increased inflation.

While  campaigning to become the Conservative leader, Mr. Poilievre claimed “money-printing government deficits have caused more dollars chasing fewer goods, driving higher prices,” promising to fire BoC Governor Tiff Macklem.

On Aug. 18, Conservative Shadow Minister of Finance Jasraj Singh Hallan wrote in a statement:

“Bill Morneau joins former Finance Minister John Manley and even Finance Minister Chrystia Freeland in admitting that this Liberal government’s reckless spending has contributed to the cost-of-living and inflation crisis that is pushing many struggling Canadians over the edge.”