Finance Minister Chrystia Freeland said the federal government is prepared to take additional steps to offset the rising cost of living if inflation continues to accelerate.
“We are not closing any door,” Freeland told reporters in Toronto on June 20.
For now, however, the finance minister said she thinks she’s done enough. Last week, Freeland used her first speech specifically on the economy in months to highlight the $8.9 billion Prime Minister Justin Trudeau’s government intends to spend over the next couple of years on affordability measures.
Freeland said she was inclined to keep a lid on new measures as additional spending and/or tax cuts could stoke demand, which could put additional upward pressure on prices. However, when asked about the efficacy of reducing gasoline taxes, she said fiscal policy would depend on whether inflation starts to cool.
“I did make clear that we take the need for fiscal constraints seriously,” Freeland said. “Having said that, we are not closing any door and we’re going to watch the affordability challenges that Canadian families are facing very, very carefully and we are prepared to do more if necessary.”
Canadian inflation reached 6.8 per cent in April from a year ago, which was one of the fastest rates since the early 1980’s, according to data from Statistics Canada. The country will get an updated reading on the figures this Wednesday.
A new report by Bank of Nova Scotia chief economist Jean François Perraulta former senior official at the Finance Department, argues that the federal government should pair the Bank of Canada’s interest-rate increases with bigger spending cuts. Perrault said the spike in borrowing costs orchestrated by Bank of Canada Governor Tiff Macklem to counter inflation are weighing on businesses.
“I think we’ve done that already,” Freeland said when asked about Perrault’s report, adding that her latest budget represents one of the sharpest decreases in COVID spending among the world’s richer countries, although she neglected to add that her emergency spending was also among the most generous.
The job of bringing down inflation is “chiefly” the responsibility of the Bank of Canada, said Freeland, adding that she has no intention of interfering with the monetary authority’s work.
Macklem has overseen three consecutive interest-rate increases this year, including unusually large half-point increases in April and June. The policy rate is currently at 1.5 per cent, and Macklem has said that he may need to push it above three per cent to get inflation under control.
Freeland made the comments at a joint press conference with Janet Yellen, the United States treasury secretary, who travelled to Toronto from Washington, DC for a day of meetings and public events with her Canadian counterpart.
Yellen, a former chair of the US Federal Reserve, said she agreed with Freeland that inflation was primarily a fight for central banks. Price pressures are even more intense south of the border, prompting the Fed to increase its policy rate by three quarters of a point last week.
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“That said, President Biden would be supportive of some complimentary fiscal actions that would supplement and support what the Fed is doing,” Yellen said.
Yellen also pointed to other global factors that are weighing on fragile supply chains and causing inflation to run up more rapidly, like the pandemic lockdowns in China as the country pursues a COVID-zero policy and the Russian invasion of Ukraine that has further weighed on an already challenged supply chain system.
Earlier, during a moderated conversation at the University of Toronto’s Rotman School of Management, Yellen and Freeland elaborated on “friend-shoring,” an emerging shift in the global order that would see democratic countries trade more with each other, while limiting their engagement with countries such as China and Russia.
Yellen noted that the conversations are still in their early stages, but the US has established a number of task forces with European allies and established a partnership with Indo-Pacific countries to identify areas where global supply chains need to be strengthened.
“This is going to be the big economic and geopolitical issue that we are going to be debating and tackling,” Freeland said said of the friend-shoring idea. “The world has not yet really started to properly grapple with how big a deal this is.”