Freeland defends budget after Scotiabank accuses the feds of ‘doing nothing’ on inflation – National

A cut in the planned government spending could help tame rampant inflation and reduce pressure on the Bank of Canada go to excursion Interest ratesaccording to a Scotiabank report.

The report of the chief economist of the bank Jean Francois Perrault and model director René Lalonde says Canadian fiscal policymakers “are not doing anything meaningful to curb inflation right now.”

The authors argue that cutting public spending will remove some of the burden of cooling inflation from the Bank of Canada and the private sector.

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Scotiabank’s analysis came as Canada’s Deputy Prime Minister and Minister of Finance free land christian it is met with US Treasury chief Janet Yellen in Toronto on Monday to discuss cooperation between nations and concerns about global inflation.

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The report cites the Bank of Canada’s renewed mandate from December last year that addressing inflation is a “joint responsibility” between the feds and the central bank.

While the war in Ukraine and ongoing supply chain issues tied to the COVID-19 recovery have been cited as the main causes of higher-than-expected inflation so far in 2022, Perrault told Global News in an interview on Monday that prices were rising earlier. The invasion of Russia.

That was linked to spurring fiscal policies by governments around the world, which sought to shield households from pandemic downturns, he said.

Although he said efforts to cut the government’s deficit in the spring federal budget were “going in the right direction,” Perrault said the latest Liberal spending plan continues to help the economy and fuel demand.

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“Under normal circumstances, it’s fine. The challenge in the current circumstances is that we have inflation that is a big problem from the perspective of Canadians. It’s well outside of what the Bank of Canada wants. It’s exceptional, there’s no question about it,” he said.

In this context, he said he believes the Bank of Canada “could benefit from a little help” in the form of cooling public spending.

Scotiabank projects that if the feds plan to increase their spending by 2.5% by the end of 2024, instead of today’s planned increase of 4.8%, the Bank of Canada could complete its interest rate hike cycle in 2.25%, 75 basic points less. from where Scotiabank forecasts rates to come later this year.

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But Freeland, speaking alongside Yellen on Monday afternoon, said he felt the feds’ latest budget goes far enough to limit government spending.

She said the rate of fiscal consolidation, the rate at which Canada is paying down its debts, is tied for the fastest in the G7, on par with the United States.

While Freeland reiterated that controlling inflation is “primarily the job” of the Bank of Canada, he said its 2022 spending plan was already a “very fiscally responsible budget.”

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He said that’s why he stuck with the budget line items announced in April instead of announcing new spending last week in his economic update.

“We understand that fiscal policy has a role to play. That is why we made this decision in April to follow a path of…fiscal adjustment,” he said.

Government inflation relief is a ‘complicated political balance’: Perrault

Statistics Canada will announce May inflation figures on Wednesday, with at least two major banks expecting a 7.4 percent reading, which would be higher than April’s 6.8 percent reading.

Scotiabank is among a growing chorus of economic forecasters projecting a 75 basis point interest rate hike in the Bank of Canada’s next announcement on July 13, following in the footsteps of the US Federal Reserve, which took a huge step last week to try to anchor inflation. Expectations.

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“We think the Bank of Canada will also move 75 basis points. They don’t really have a lot of options,” Perrault said.

Perrault was the featured speaker for Freeland in her keynote address at the Empire Club of Canada in Toronto last week when she outlined federal plans to help Canadians deal with inflation.

The finance minister did not announce new spending plans in that speech, instead touting $8.9 billion in measures from the government’s two previous budgets that are now coming into effect. Among those plans are increases in support for child care, old-age and worker benefits, as well as $500 in direct support for low-income renters.

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Perrault said it is a “tricky political balance” to directly support Canadians through runaway inflation because fiscal stimulus tends to increase long-term spending demand.

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“By giving people money, effectively, whether it’s to help adjust for inflation or otherwise, you continue to fuel that fire,” he said.

RSM Canada economist Tu Nguyen told Global News last week that by focusing inflation support measures on vulnerable Canadians, the feds could thread the needle of mitigating inflation for those hardest hit without creating too much demand.

“How that plays out in reality remains to be seen,” he said.

Perrault noted that if the central bank can minimize rising interest rates in coming years, it would mitigate a correction in the housing market.

“That would mean lower mortgage rates, it would mean a lower cost of financing for Canadians in general,” he said. “It’s certainly a minor financial burden for a portion of Canadian households.”

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