If there is another way to fix the economy, it must be done by the government, not the Bank of Canada. With grocery profits seeming to increase weekly, more needs to be done in that area.
By Sheila Copps
First published in The Hill Times on July 17, 2023.
OTTAWA—According to Albert Einstein, the definition of insanity is doing the same thing over and over again and expecting different results.
Someone should tell that to Bank of Canada Governor Tiff Macklem. The bank has hiked interest rates 10 times since March of last year.
Instead of cooling the economy, the action simply hits workers harder. The Canadian economy continues to expand, with 60,000 new jobs added last month. Companies continue to face a worker shortage, forcing employers to increase their wage offerings in the hunt for employees. That is not a bad thing.
But hiking interest rates increases costs and depresses wages. Macklem insists his monetary policy is working, but he cannot say whether or not last week’s rate rise will work, calling for patience to see whether the actions succeed in reining in inflation.
Patience may be fine for those managing the money markets, but what about ordinary citizens on the verge of losing their homes because of the hike in interest rates?
The moves are fodder for New Democratic Party Leader Jagmeet Singh, who says these interest rate hikes are simply making things worse for workers and businesses. Singh is calling the current situation “greedflation,” and he blames the problem on greedy CEOs who are using the inflationary crisis to make more profit and gouge consumers. He says the government has to take another approach to tackle the current inflationary spiral.
Singh says supply chain issues, the war in Ukraine, and the cost of housing and groceries are responsible. None of these factors will be affected by interest rate increases. Only the pocketbooks of ordinary Canadians are touched.
Singh’s criticisms enjoin the year-long campaign of Conservative Leader Pierre Poilievre, who started calling for the firing of the Bank of Canada governor during his run for the party leadership. However, Poilievre’s financial acumen took a hit when he also suggested that Canadians should invest in cryptocurrency because it allows them to escape the inflation being created by the central bank.
Leadership opponent Jean Charest attacked Poilievre’s firing promise, and then Conservative finance critic Ed Fast stepped down from his post, claiming, “I’m deeply troubled by suggestions by one of our leadership candidates that the candidate would be prepared to interfere already at this stage in the independence of our central bank.”
That statement was made more than a year ago, but the continual climb in interest rates has started to create political pressure from both the right and the left. Singh is not calling for Macklem’s resignation, but he is asking for a change in the bank’s conventional approach to fighting inflation.
With complaints from both sides, the government is going to face some real pressure to pivot financially. Liberals can’t afford to fight inflation and an election. However, the fact that the Federal Reserve in the United States is expected to raise rates slightly at the end of the month could blunt criticism of the Canadian situation.
At the end of the day, ordinary Canadians are feeling the pinch at the grocery store and in the housing market. The cost of rental accommodation is skyrocketing across the country, and the path to home ownership for many is blocked by the high cost of mortgages.
Macklem is not the only central bank governor using interest rates as a blunt instrument, and if there is another route, it must be determined by the government, not the bank governor.
With grocery profits in the eye of the storm while prices seem to increase weekly, more needs to be done in that area. The recent price-fixing decision of the Competition Bureau, issuing a $50-million fine against Canada Bread, was a good first step.
But that money should go back to those Canadians who paid excessive prices for years.
Likewise, the bureau can do more, including speeding up the length and breadth of its investigations into price-gouging. The bread investigation took seven years and involved immunity to Loblaw Companies for revealing its part in the scheme. On average, the Competition Bureau found that Canadians paid $1.50 extra for bread products for the past eight years because of the collusion.
There are undoubtedly other food groups and other consumer items that face a similar lack of competition because of price-fixing. A move to strengthen the budget and investigative strength of the Competition Bureau would be a good place to start.
Firing the bank governor is not the answer. But doing something to stop price gouging would be a good start.
Sheila Copps is a former Jean Chrétien-era cabinet minister and a former deputy prime minister. Follow her on Twitter at @Sheila_Copps.