Economists warn that government aid to help raise prices could fan ‘inflationary fires’


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Canadians are vocal about their frustration with the rising cost of living – and the politicians are listening.

The latest trend among governments in Canada is to send money directly to households to help with high inflation for decades, and that’s what worries economists.

CIBC Chief Economist Avery Shenfield said, “While there are times when financial generosity is just what the economy needs, these are not times like these.” He said in a Friday note.

“In a period of high inflation and excess demand, tax cuts or check distributions to fuel up the inflationary fire can make central bank action raising interest rates to quell demand very troublesome.”

High energy prices generated huge revenues for both regional and federal governments and led to a recurring trade surplus for the first time since 2014, Bloomberg reports.

Shenfield wrote: “Our concern is that Canada’s federal and provincial governments are feeling the temptation to ‘do something’ to help their constituents deal with high prices.

interrupts already. Either through rebates or income support, Shenfield said, most residents of Ontario, Quebec, Saskatchewan and Manitoba have received or sooner payments designed to help inflation.

He said that while Alberta chooses a new leader, it remains to be seen how much of that province’s $13 billion surplus this year will go towards debt reduction.

According to Robert Cavic, BMO’s chief economist, regional measures to help Canadians adjust add up to $4.4 billion, or 0.2 percent of GDP, so far.

Plans were revealed last week that Ottawa GST rebates will double for six months and provide assistance to Canadians who are struggling to pay rent.

“We will not deny that there are families in dire need of assistance right now in this inflationary environment,” Kavcic wrote in a note. “But, from a policy perspective, we all know that sending money as a measure to support inflation is inherently…inflationary.”

The problem, Shenfield said, is that unless targeted too narrowly to reach those who need it most, such aid increases purchasing power and actually increases inflationary pressures.

“By helping Chantal pay his food or petrol bill with a government check, you hit John with higher gross inflation, and Carlos with higher mortgage payments as the Bank of Canada responds with a tougher rate-raising cycle,” he said.

Shenfield said governments should save their windfall gains for the less difficult days because, with recession “a clear risk” in the next two years, it may not last long, especially if commodity prices fall in the shadow of the global downturn.

“And if another global crisis occurs in the coming years to stifle growth and inflation, any fiscal room we can build now will come in handy, by providing ammunition to hand out checks, cut taxes, or increase spending when the economy really needs it,” he wrote.


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  • The Federal Liberal Caucus will hold its summer retreat in St. Andrews-by-the-Sea, Note: September 11-13.

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Economists were surprised when they were surprised by Canada Job numbers fell on Friday. Most were expecting a gain of 15,000 jobs in August, but instead the country lost 40,000 jobs and the unemployment rate jumped from 4.9 percent to 5.4 percent. So what does this mean for the economy and the Bank of Canada?

The August data was the third consecutive monthly drop in employment and Oxford Economics says while two months of job losses may have been a coincidence, three months indicate a trend.

Oxford expects the labor market to continue to weaken as the economy enters a mild recession this fall. However, with the unemployment rate still historically low and average hourly wage growth continuing to rise, these latest numbers will not be enough to deter the Bank of Canada from raising its interest rate by 50 basis points in October, in their view.


Robert Kiyosaki, author of Rich Dad Poor Dad, predicts a major stock market crash. Meanwhile, the investor, who says he made a fortune by facing the herd during the Great Recession, believes today could be the perfect time to “get richer.”

Our content partner MoneyWise takes a look at two assets Which Kiyosaki prefers now. Read more here to find out which one.


Today’s Posthaste was written by Pamela Heavin (Tweet embed), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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