Conservative Leader Pierre Poilievre and his wife, Anaida, arrive for a news conference at a grocery store in Vancouver on July 14, 2023. Last week, Mr. Poilievre effectively promised to bring interest rates down.DARRYL DYCK/The Canadian Press
If you’re Justin Trudeau, the cure to inflation might be worse than the disease. Because for many voters, the cure will just feel like more of the disease.
Inflation, the ghastly economic ill that Pierre Poilievre has blamed on the government since before he became Conservative Leader, is easing off to levels closer to the historical norm.
But the Bank of Canada’s campaign to fight what it insists is stubborn core inflation with higher interest rates – the quarter-point rise last week was the 10th hike in 16 months – is a big challenge to household finances. For many, it will feel like more inflation, but worse.
“It’s working,” Bank of Canada Governor Tiff Macklem told The Globe and Mail’s Mark Rendell last week in an interview about the bank’s efforts to curb inflation. “But it’s not working as quickly or as powerfully as we thought it would.”
The bank’s interest-rate medicine will be tougher, for longer. For Mr. Poilievre, it means inflation will be a gift that keeps on giving even as it fades away. For Prime Minister Trudeau, it means political danger.
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A year ago, one might have thought the current inflation figures would make Mr. Trudeau’s Liberals celebrate. The annual rate has fallen from 8.1 per cent in June, 2022, to 3.4 per cent in May, and when June figures are released this week it will probably go lower.
But that doesn’t mean people feel things are getting better.
For starters, people think inflation is higher than statistics indicate. The Bank of Canada’s June survey of consumer expectations showed Canadians still think it is at about 7 per cent. They are starting to believe inflation will ease, but still expect it to run about 5 per cent a year from now.
A year ago, more people in Canada blamed supply chain disruptions than high government spending, according to the same Bank of Canada survey. Now, the blame is divided between those two factors roughly evenly.
Lower-income earners tend to perceive inflation as higher than other people do, economists’ studies have found, so Mr. Poilievre’s argument that inflationary big-government policies hurt the little guy might have fertile ground.
And now, the steep rise of interest rates is likely to make a lot of middle-class homeowners feel like inflation fires are still burning.
The Bank of Canada reported in May that about one-third of mortgage holders have already seen their payments rise, but nearly all of the rest will experience that over the next three years. For many, the increases will be 20 per cent to 40 per cent.
That’s bad for the Liberals, even if economists generally don’t agree with Mr. Poilievre that the big pandemic deficits run by Mr. Trudeau’s government are the chief cause of inflation – and to blame for the interest-rate hikes now being deployed to combat it.
A Bank of Nova Scotia analysis published in December concluded domestic deficits accounted for about 15 per cent of the factor, while global factors and supply issues were the main causes. But most homeowners pay a lot more attention to their mortgage bills than economists’ reports.
The Liberals will try to counter the economic angst as they have – by promising to ease the pain with programs and benefits cheques, such as the GST rebate they puffed up as a “grocery rebate,” and promising to make the economy less uncertain by creating jobs.
Those things actually run against the Bank of Canada’s goals, which include cooling the labour market, but of course, individuals don’t care about inflation as much as they care about their own standard of living and economic security.
Mr. Poilievre has his own challenge, too: He can blame the Liberals for inflation, but can he convince people he can make it better?
Last week, he effectively promised to bring interest rates down, but his promise to fix things by cutting deficits and carbon levies doesn’t offer quick relief.
The Bank of Canada estimates that Ottawa’s carbon-pricing system raises inflation by 0.1 per cent a year, so killing it won’t change much. Reducing deficit spending now could help to cool inflation, but it’s not clear what Mr. Poilievre would cut, let alone if it would have much immediate impact.
Still, Mr. Poilievre can expect that an economy that makes many feel that life keeps getting less affordable will do the thing he wants most: drive demand for political change.