READY FOR 8 PERCENT? Statistics Canada will release June inflation data just a couple of hours from now. We assume you’re on the edge of your seat.
Economists are predicting the new inflation rate will land between 8 and 9 percent, after surging to 7.7 percent in May for its fastest pace since 1983. Bank of Canada Governor TIFF MACKLEM last week predicted price growth would “likely remain around 8 percent in the next few months.” In an attempt to cool the inflationary surge, Macklem surprised some market watchers when he raised interest rates by a colossal 100 basis points. He also signaled more rate hikes are on the way. — All that to say: This morning’s number may not be much of a surprise. The real question, though, is what policymakers can do to ease the pain of inflation. Playbook took that question to a handful of folks who are smarter than we are, and this morning, we offer up their answers. Some have been edited for length and clarity. REBEKAH YOUNG, Scotiabank vice president and head of inclusion and resilience economics: The best thing policymakers can do to ease the pain of inflation is to double down on efforts to get it under control. With the Bank of Canada pivoting sharply, fiscal authorities should follow suit. Reining in governments’ own discretionary spending without impacting transfers could offset some of the heavy lifting the Bank of Canada would otherwise need to do. This could be done in the context of an accelerated timeline for the promised expenditure review. While the full impact may only play out over the medium term, it would have an important signaling effect in the near term. DAVID MACDONALD, senior economist, Canadian Centre for Policy Alternatives: There are two broad categories of action: 1. Attempt to moderate prices directly (where they have an influence). For example: — Housing prices via mortgage underwriting rules. Specifically, the feds could change the amount of money down required by investors from 20 to 50 percent. The goal would be to reduce house prices for non-investors. — Constraining rental increases. — Reduce other prices governments control: Child care fees, tuition fees, transit fees are all set by or are substantially influenced by federal or provincial government policies. 2. Offset the higher cost through a transfer of some kind. For example: — Provide a one-time transfer to everyone who receives a particular transfer. I'd probably pick the GST credit. — While all federal government transfers are indexed to inflation, some take longer for that indexation to update. That could be sped up. I'm thinking particularly of the CCB, the CWB and GST credit. — Few of the provincial government low income supports are indexed to inflation. Specifically the child, senior and sales tax benefits are often unindexed. Social assistance is almost never indexed to inflation. All that should be immediately indexed. RANDALL BARTLETT, senior director of Canadian Economics at Desjardins: The federal government is currently walking the right balance between winding down pandemic-era stimulus, continuing to provide support to vulnerable households and resisting the urge to cut taxes which will only benefit a small segment of the population. It has also made clear that it supports a credible and independent central bank as the front line against inflation, which is the correct approach. MOSTAFA ASKARI, chief economist of the Institute of Fiscal Studies and Democracy: The most effective way is targeted cash transfers to low-income households. For example, the seniors who are eligible for the Guaranteed Income Supplement can receive a temporary increase in that portion of their benefits. FRANCES DONALD, global chief economist and strategist for Manulife Investment Management: Problematically, the bulk of Canadian inflation isn’t caused by Canadian-made factors. Poor global weather patterns that hurt food supply, surging global energy costs, the war in Russia/Ukraine and the strain on supply chains and labor shortages from Covid are all contributing to the pain in prices for Canadians. The Bank of Canada can crush demand and/or create a recession so some prices come down, particularly housing, but the pain at the pump and the grocery checkout can only be offset, not cured by Canadian policy. — So that’s the economists: We then turned to a few political strategists to ask how the Liberals should be talking to Canadians about inflation, and whether they need a new approach. Here’s what they had to say: ELLIOT HUGHES, senior adviser at Summa Strategies and former Liberal adviser: For a government that prides itself on understanding how Canadians feel, and crafting policies that match, it is somewhat puzzling that more has not been done to reassure Canadians that the government “feels your pain.” And barring swift action, they are on the precipice of losing that unique and powerful connection. That is, to put it diplomatically, a sub-optimal outcome, when on the cusp of a fall election (j/k!) and a global recession (no j/k). Luckily, this outcome is avoidable. For starters, the government must take the inflation and cost of living crisis as seriously as the impact that crisis is having on Canadians. Immediately. This is not a party you want to be late to. People will notice, they won’t be happy about it, and they’re unlikely to invite you to the next one. KATHLEEN MONK, NDP strategist and president of Monk + Associates: Inflation will continue to dominate the political discussion in 2022 and so far, the government has struggled to respond. The government could do a much better job at identifying who the real enemy is. This is where U.S. President JOE BIDEN and the presumed next leader of the Conservative Party have been more effective. PIERRE POILIEVRE has identified a clear enemy for working-class people to channel their anger at: “the elite and gatekeepers.” The Liberals need to explain why Poilievre is wrong and show how Poilievre will only make the problem worse. New Democrats are already doing this day-in and day-out, calling out the pandemic profiteers and demanding that the government increase taxes on them, but the NDP often lacks the political megaphone to share that message widely. Do you enjoy Ottawa Playbook? Maybe you know others who may like it, too. Hit forward. Click here to sign up to this free newsletter. | 
