Leaders’ first showdown delivers little clarity

Canada’s ruling Liberals and Opposition Conservatives brought their debate about inflation to the floor of the House of Commons this week and left the country as confused as ever about the path back to price stability.

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Opinion

Canada’s ruling Liberals and Opposition Conservatives brought their debate about inflation to the floor of the House of Commons this week and left the country as confused as ever about the path back to price stability.

Prime Minister Justin Trudeau’s eagerly awaited confrontation on Thursday with Pierre Poilievre, the Conservatives’ fierce new inflation-busting leader, cast no light on the causes of Canada’s rising consumer prices, nor on the means of reining them in.

Inflation in Canada is a serious but diminishing problem. Statistics Canada reported on Tuesday that the August consumer price index, reflecting prices for a basket of goods and services, was up seven per cent from August last year. This reflected a significant slowing of inflation compared to July, when the index was up 7.6 per cent. It was also the second consecutive monthly decline in the rate of inflation.

The Bank of Canada has already increased interest rates dramatically and promises to continue. This will, in time, siphon money out of the bank accounts of families and businesses, compelling them to curtail their spending so they will stop bidding up prices for goods and services.

It’s a cruel and brutal way of restoring price stability, but it works. It is the method Canada, the United States and the other market economies are now using to fight inflation.

Mr. Poilievre brought to the parliamentary debate his theory that the Liberal government caused inflation by spending too much money and is causing more inflation by increasing the rate of its carbon tax. Massive spending during the COVID-19 pandemic probably is a source of inflation. The carbon tax, however, clearly is not, because its proceeds are returned to consumers to spend as they wish.

The Federal Reserve Board in Washington, in common with most economists, attributes the current inflation in part to food and energy market disruptions arising from Russia’s invasion of Ukraine, as well as effects of the pandemic. The U.S. central bank is cranking up interest rates in much the same way as Canada is doing in order to drain money out of the national economy and curtail inflation.

Mr. Trudeau countered the Opposition attack by pointing to his plan to increase payments to low-income Canadians by way of a dental plan for children under 12, rebates of goods and services tax and support for low-income renters. These are methods of easing the pain of inflation for some of those most hurt by it. They are not, however, going to curtail inflation. Mr. Trudeau is leaving that difficult task to the Bank of Canada.

Inflation will be addressed soonest in Canada if political leaders state the problem accurately and offer realistic solutions. Neither Mr. Trudeau nor Mr. Poilievre helped matters in their question period debate on Thursday.

Mr. Trudeau should acknowledge heavy pandemic spending is a factor in the current inflation, and that the Bank of Canada is now withdrawing that extra cash from circulation. This will be painful for some families and businesses, but it is necessary to restore price stability. His gestures in the direction of low-income families are a spoonful of sugar to help the country swallow the bitter medicine.

Mr. Poilievre should acknowledge the pandemic spending was necessary at the time, though the current inflationary hangover is hard to bear. He should drop his groundless claim that the carbon tax contributes to inflation. He should join in warning Canadians that prices for food and energy are likely to remain unstable while Russia’s war in Ukraine continues.

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