THE WEIGHTFUL 8%

Grits still won’t act as inflation hits 40 year record

The Trudeau government’s silence on the inflation crisis was deafening a week ago Wednesday.
Prime Minister Justin Trudeau flew from Vancouver to Halifax, but he went into private meetings with no statements or media availabilities while finance minister and deputy PM Chrystia Freeland appears to be on holidays.

As inflation hit 8.1%, the highest level since January 1983, the Conservative opposition were willing to talk when the government wasn’t.

“Today’s data confirms what every Canadian family already knows – the cost of living crisis is out of control and is devastating household budgets,” Conservative finance critic Dan Albas said.

While prices overall were 8.1% higher in June than they were a year earlier, gas was up 54.6%, other energy such as natural gas or other oil products were up 38.8% and food was up 8.8%. Take gasoline out of the equation and the inflation rate would drop to 6.5% – but that is still far too high.

“Families increasingly feel crushed by what it costs for food, gas and a place to call home. Stop inflationary deficits. Bring back common cents,” Conservative leadership front runner Pierre Poilievre posted to social media.

Poilievre’s main challenger Jean Charest said Trudeau’s record on inflation was making life difficult for many.

“Trudeau’s inaction is not an option Canadians can afford. I will make life affordable by cutting taxes and reducing spending,” Charest said.

The Conservatives have been pointing out that the Trudeau government’s high spending , high deficit budgets have been contributing to inflation for some time. Trudeau has denied this and blamed international factors such as supply chain issues caused by the pandemic or Russia’s invasion of Ukraine.

While those are obviously factors, so is government spending.

RBC, BMO and Scotiabank have all said that government spending is a contributing factor to inflation, but the Trudeau government’s reaction is the equivalent of shrugging your shoulders.

“I think we’ve done that already,” Freeland said dismissively last month when asked if the government would consider reining in spending.
Her budget in April did see a major reduction in spending but that was all due to reducing spending on COVID pandemic measures. Overall, government spending remains up across the board as it has since the Trudeau Liberals took power in late 2015.

In an interview with BNN Bloomberg, a week ago Tuesday, David Dodge said he hoped the Trudeau government would “postpone some of the expenditure enhancements” announced in the last budget. Dodge was the governor of the Bank of Canada from 2001 through to 2008 and before that was deputy minister of finance when the team of Jean Chretien and Paul Martin tamed out of control deficits. He know what he’s talking about and called on the government not to make any moves to make inflation worse.

“The best we can hope for is they don’t add fuel to the fire by providing a bunch of tax cuts or expenditure increases along the way,” he told BNN Bloomberg.

Ian Lee, professor of economics at the Sprott School of Business at Carlton University, said while the Trudeau government isn’t the root cause of inflation, their spending is making it worse.

“In the summertime, when it is really hot out, we don’t put on the heating furnace – we turn on the AC,” Lee said.
Lee said instead of lower spending, or turning on the AC, the government continues to crank the heat with high spending. That leaves the Bank of Canada to try to deal with inflation alone by hiking interest rates. After upping their key rate 100 basis points two weeks ago, they’re expected to increase it again by 75 basis points in September.

That will cause pain for home owners with mortgages and anyone with a line of credit or credit card debt, and it could hurt the economy.