Latest NewsLocalPolitics

Inflation won’t be solved on the campaign trail, experts say –

While some party leaders have mentioned inflation during this election campaign, experts say it’s mostly removed from the control of political players, and that voters are unlikely to make it a decisive issue.

In the past few months, inflation has moved higher on the list of priorities of policy experts. It’s not spiralling out of control in an early-’80s Volcker-shocks sort of way, but it’s also above the Bank of Canada’s target rate of two per cent. That’s in contrast to last year, when low spending and the vagaries of the pandemic pushed inflation under the target rate.

A growing group of economists — although not a consensus — has flagged it as something to watch. And while some inflation is expected, as the money supply increases annually, too much erodes Canadians’ purchasing power, and is especially a problem if their savings can’t keep up. (People’s Party Leader Maxime Bernier still advocates for a zero per cent target.)

Last week, a reporter asked Liberal Leader Justin Trudeau how he’d approach the Bank of Canada’s mandate, which gets renewed every five years (including this one), meaning its priorities depend to some degree on the government of the day.

In an answer criticized by many Conservatives, Trudeau said, “When I think about the biggest, most important economic policy this government, if re-elected, would move forward (with), you’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”

Critics pounced, and the quotation was shared, missing the part about families.

Experts say the issue is more nuanced, and reflects Canada’s governance structure.

“It’s not like they have complete independence,” said Rotman School of Management economist Peter Dungan, referring to the Bank of Canada. “Ultimately, their clout is derived from some sort of accountability and political blessing, and they receive that, in part, from the mandate they agree to with the government of the day every five years.”

But that mandate also tends to be non-partisan, Dungan said, and its negotiation is at a “technocratic” level, which includes a scientific analysis of what’s possible and realistic, given the economic and fiscal contexts.

There’s a role for political oversight, he said. “You can’t leave all monetary policy forever to bureaucrats.” But the arms-length approach has worked out well for Canada and similar countries, he said. In contrast, textbook cases of not politicizing, or over-directing the central bank, include extremes like Zimbabwe, Venezuela, and Argentina.

Inflation is important, but it’s not immediately solvable by the politics of the day, agreed Richard Ivey School of Business economist Mike Moffatt. “There are real issues with inflation, none of which are really in the government’s control right now,” he said, although some policy levers, such as making housing more affordable, could be explored.

One reason inflation is becoming a concern is its context, Moffatt said. “The numbers look high, because you’re comparing it to last year, when numbers were depressed,” he noted.

Those numbers were also accompanied by higher savings rates, as Canadians stayed home under public health orders, and didn’t have places to spend discretionary income. Those rates will mitigate the harms of future inflationary shocks, unlike what happened in the early ’80s.

The federal campaign isn’t the only place where the politics of inflation are being considered. Even though it’s typically a federal matter, in June, the Ontario Progressive Conservative Party polled their supporters, asking: “Are you worried about how inflation and interest-rate hikes might hit your pocketbook?”

While inflation concerns are real, they won’t mean much on the campaign trail, said University of Toronto political scientist Nelson Wiseman. “It’s too arcane,” he said, adding that most voters don’t base their decision on the issues, but on party brands and a candidate’s leadership qualities.

With files from Jessica Smith Cross.