A woman walks past the Bank of Canada headquarters in Ottawa, on June 1, 2022.Adrian Wyld/The Canadian Press
As Doug Ford tells it, Bank of Canada Governor Tiff Macklem is some sort of economic sadist, intent on ruining Canadians’ finances.
“I have a message to the Bank of Canada,” the Ontario Premier intoned on Tuesday. “You want to destroy people’s lives, you want to watch people go bankrupt and lose their homes? Just raise the interest rates. It’s going to be on your hands. We don’t need any more interest rates being raised.”
The way to tame inflation, Mr. Ford said, would be for Ottawa to send his government money, and lots of it, to build highways and other infrastructure.
Now, this could be written off as just another spasm of Ford Nation populism (and a fairly obvious attempt to deflect from the growing controversy over the province’s protected Greenbelt area) were it not part of a pattern of politicians taking potshots at the central bank.
British Columbia Premier David Eby was slightly more circumspect in his criticism of the Bank of Canada in a letter he dispatched last week, but he was in essential agreement with his Ontario colleague: interest rates have risen too high, so the bank should forswear additional hikes. (Newfoundland and Labrador Premier Andrew Furey joined the chorus on Tuesday as well.)
Oh, and one more thing. Both the B.C. and Ontario premiers seem to think that a rise in interest rates increases inflation, in defiance of the most elementary economic thought. “I think it is critically important to go on the record … to point out to the Bank of Canada that Statistics Canada is saying that the biggest driver of inflation in our country right now is rising mortgage rates,” Mr. Eby said last week.
This is blatant misinformation that takes a narrow technical fact – rising interest rates do push up housing costs that form part of the consumer price index – and attempts to mislead Canadians into thinking that inflation would no longer be a problem if only Mr. Macklem were to abandon his inexplicable obsession with punishing Canadians.
The facts are this: a steep increase in rates was needed to combat a resurgence in inflation. The bank could have acted sooner, but acted decisively when it did move. And the cumulative effect of those hikes, indisputably, has been to push down inflation considerably. Hopefully, the premiers are aware of all of this and are only trying to cynically dupe the ill-informed. (That they are making these pronouncements just as the bank is expected to stand pat does tend to bolster that possibility.)
Similarly confounding is the contention from both premiers that more, not less, government spending is the fix for inflation. Mr. Ford’s version – Ottawa should pay for more highways! – is particularly nonsensical. Boosting spending on roadworks is the classic way to boost demand in an economy. In other words, it is precisely the wrong step to take.
Mr. Eby is more nuanced in talking about more spending on infrastructure to relieve supply-chain bottlenecks. It’s true that such spending, to the extent it did not devolve into regional pork-barrelling, could head off future inflationary pressures. But expanding Vancouver’s port years from now does nothing to alleviate this month’s price pressures.
That fundamentally flawed grasp of economics is the start, but far from the end, of the problem with the premiers’ inveighing against the Bank of Canada. Neither has any direct political influence over the bank, but they are trying to delegitimize its mandate to control inflation.
There’s no doubt that the increase in interest rates has been painful for many Canadian households, and unbearable for some. But the corrosive effects of inflation, if left unchecked, would have inflicted much greater pain later, and would have been rolled back only at much greater cost.
If Mr. Ford and Mr. Eby wish to speed the decline in interest rates, they can tend their own (rather overgrown) gardens. British Columbia, for instance, was headed for a $5.7-billion surplus in its last fiscal year, until Mr. Eby embarked on a multibillion-dollar spending spree. That’s part of a broader problem of Ottawa and the provinces, with rare exceptions, making the Bank of Canada’s job harder by running deficits that add to inflationary pressures.
Acknowledging this would mean telling Canadian hard truths rather than concocting fairy tales about meanspirited central bankers. If the premiers cannot manage that, then they could at least remain silent and allow Mr. Macklem – evidently the only adult in the room – to get on with his job.