Would you be concerned if the price of milk jumped 20%? Yes, says the federal finance minister
Heather Scoffield: Is Justin Trudeau to blame for inflation? That depends on which Conservative you ask
Would you be concerned if the price of milk jumped 20%?
Oh, our butlers too! Or maybe not. Maybe, you say, dairy producers are responsible and the government should provide subsidies.
Yes, says the federal finance minister, Bill Morneau. But it’s worse than that. Dairy farmers are rising out of control and … he seems to mean … costing the government millions.
Which brings us to the big question: does Justin Trudeau bear some blame for inflation?
“The dairy farmers want to get back to work. They should not be the cause of inflation,” said the minister last week in the House of Commons.
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This is getting to be like Canadian elections, where no matter how many journalists shout “what are you going to do about inflation?” even the hapless leaders call it “cheese crisis”.
The basic facts are these: inflation has been running at about 2%, which is historically below the central bank’s 2% target; but now it’s soaring at 3%, which is being driven by higher prices of imports, especially as the Canadian dollar falls and pushes up imported prices for things such as food and clothing.
From an economic point of view, inflation is not actually a problem. Product prices go up because the economy is running at near full capacity. When inflation rises, the prospect of wage increases has to match up with price rises, which has the effect of inducing businesses to increase their prices.
That may not mean many people will receive extra cash in their pockets: if the people who run your local pizzeria got a bigger piece of the pie, it would not necessarily increase the price of a panini: there are plenty of high-street lozenges and cookie jars to fill and marginally larger delights can be ordered online.
Even the Bank of Canada, which has been trying hard to sort out the problem, views inflation as a possible problem only over the longer term. In the meantime, the economy still seems healthy. Last year was the 12th consecutive quarter of growth. Other governments sometimes put temporary tax rises or extra spending into their budgets, but that would stop the Bank of Canada taking rates higher.
That brings us to the greatest question of all: when the Canadian dollar is falling, does that mean Justin Trudeau’s making a habit of pulling out all the stops to win back the French-speaking Quebec voters who dumped him in 2015? No. Those tax increases and spending commitments don’t come from the federal budget. They come from the provincial government.
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Rather, as in other Canadian provinces, an interest-rate differential with the US has been triggering demand for goods coming out of the Great White North; the lower Canadian dollar makes all that foreign money go further when it’s spent on Canadian goods and services.
And yes, Canada is dependent on trade with the US for a huge chunk of its export and investment income: but so was Scotland when it rebelled against the hegemony of London in the 1990s, and I’m told Canada’s years without a big interest-rate hike are helping protect the Canadian economy from the ravages of Brexit.
• Heather Scoffield is a former senior political correspondent for the Canadian Broadcasting Corporation