Ahead of another steep interest rate hike expected later this week, NDP leader Jagmeet Singh is questioning whether the current slate of prescriptions to cure inflation has become unnecessarily punitive for average Canadians.
In a letter addressed to Prime Minister Justin Trudeau and shared with the Star, Singh makes the case for the Bank of Canada to dampen its aggressive approach to rate increases, while maintaining that the institution is and should be independent. He also writes that the government can do more to help Canadians weather the current inflationary storm.
On CTV’s Question Period Sunday, however, Singh went further, taking direct aim at the central bank.
“There’s absolutely no merit to their approach,” Singh said.
The Bank of Canada will announce its next rate decision Wednesday, after raising rates by 3 full percentage points since March — making it one of the most hawkish in the Western world in using hikes as a strategy to tamp down inflation. Traditional economic thinking holds that making it harder to borrow and therefore spend money will stifle the problem of too much cash chasing too few goods, the cause of an inflationary spiral.
Economists are now expecting a second consecutive .75 percentage point hike from the Bank after September’s consumer price index was up 6.9 per cent year over year, a slowing but slightly worse than expected rate of annual inflation. That would put the target overnight lending rate at 4 per cent, where it hasn’t been since the 2008 financial crisis.
“Food prices continue to surge, while gasoline prices have tamed but remain elevated,” Benjamin Reitzes, Managing Director of Canadian Rates and Macro Strategist at the Bank of Montreal, wrote in an update Friday.
These “stickier” numbers “suggest that it could be tougher to crack inflation than anticipated,” Reitzes said, forecasting a .75 percentage point hike. “The latest inflation figures aren’t likely to provide any leeway to soften [the Bank’s] hawkish rhetoric.”
In his letter, Singh points out that workers’ wages haven’t kept up with persistent price increases in basic goods. Meanwhile, the causes of many of those increases — including the war in Ukraine, supply chain tangles, and “price hikes fuelled by corporate greed” — are out of Canadians’ control.
On Question Period, Singh more bluntly criticized the Bank of Canada, saying there was “no evidence” for their approach.
“We absolutely need to combat inflation. But if the Bank of Canada’s approach has nothing to do with the root causes of inflation, and is only going to cause pain for Canadians, then we’ve got to question why is that the approach they’re taking?”
Telling Trudeau that “your government has a responsibility too,” Singh’s letter calls for removing GST from home heating bills and mental health counselling, reforming EI, and making it easier to punish corporations for price fixing.
Other economists back the Bank of Canada’s approach to front-loading pain to avoid worse ills down the road.
In an update Friday, Derek Holt, Vice President and Head of Capital Markets Economics at Scotiabank, also predicted a .75 percentage point rate hike, writing that “slow and steady rate hikes” would “probably take too long and risk failing further behind. Invoking as much damage in as short a period as possible is the essence of the bulked up and front-loaded experiment in order to prevent this next stage of transmission effects from taking root.”
Addressing a Senate committee last Thursday, former Bank of Canada governor Mark Carney endorsed the Liberal government’s “fiscal discipline” — in other words, its avoidance of policies that would dump cash into Canadian’s pockets and undermine the central bank’s attempts to slow spending. Carney also described a recession in Canada as “probable.”
Not all economists are in lockstep. In a report published this month titled “A Cure Worse Than the Disease?,” Jim Stanford, Economist and Director of the Vancouver-based Centre for Future Work, described the Bank’s rate hikes as a “crusade,” arguing for a pause to evaluate the effects of the increases so far — and an attempt to avoid a damaging recession.
Kate Allen is a Toronto-based reporter covering science and technology for the Star. Follow her on Twitter: @katecallen