The only people now denying that the Trudeau government’s runaway spending is not part of Canada’s inflation problem are in the government or among its staunch supporters.
A Scotiabank report says that if the government doesn’t cut spending, interest rates, and therefore mortgage rates, will need to continue to rise.
“Lower government spending on goods and services could help reduce inflation,” says the report for bank clients.
“I think we’ve already done that,” Freeland said Monday when asked about the report.
Written by Jean-François Perrault, the bank’s chief economist, and Réne Lalonde, the bank’s director of models and forecasts, the report says there is no question that government spending in Canada is a contributing factor to inflation. In fact, even when they say that international factors such as the war in Ukraine and supply chain problems are external factors, they point to government spending in support of the pandemic as the main cause of rising inflation.
“We believe that much of the strength in inflation can be linked to what was effectively a globally coordinated fiscal boost to protect economies against the worst economic and financial shocks of the pandemic,” the report states.
While the two men aren’t saying the spending shouldn’t have happened, they are affirming what many have been pointing out for a long time. Government spending that was initially intended to help economies weather the pandemic storm ended up causing pain through inflation.
Both say that the Bank of Canada should not be fighting inflation alone and that both the central bank and the government have a role to play. The government’s role, they say, should be to reduce its spending on goods and services to help cool the economy and the rate of inflation.
With both the government and the bank doing their part, the report argues that interest rates will not have to rise as dramatically as predicted. A recent Bank of Canada report said mortgages taken out in 2020-21 at low rates could increase monthly payments by 30%-45% when renewed in 2025-26.
That would mean families would pay between $600 and $1,000 a month more, according to the Bank.
Scotiabank’s report says that kind of painful increase in payments could be avoided.
“The simple reality is that businesses and households are going to make concessions as they factor higher inflation and financing costs into their budgets. It seems unreasonable that governments do not do the same,” the report says.
This isn’t the first time Scotiabank has warned about high federal government spending adding to inflation, and Scotiabank isn’t the only one denouncing it.
“Fiscal policy has as important a role to play in bringing down inflation as monetary policy,” said Bank of Montreal chief economist Doug Porter. balloon and mail Recently.
Last fall, Scotiabank’s Rebekah Young wrote that Finance Minister Chrystia Freeland needed to curb spending growth “lest she be seen fanning flames that could further strain affordability pressures for Canadians.”
Freeland slowed spending on pandemic programs, but overall public spending continues to grow in other areas and especially compared to pre-pandemic levels. That increased spending adds to inflation, according to two of the country’s largest banks and most respected economists.
Freeland says he will consider doing more if necessary, but for the most part, he remains in denial that government actions are playing a role. She and Trudeau can watch as families experience painful increases in mortgage payments, or they can do the right thing and cut back on spending.
The choice is yours, the consequences, either way, are on you.