A Scotiabank investors report decries the Trudeau government’s lack of action in reducing government spending, forcing the Bank of Canada (BoC) to hike interest rates.
According to Bloomberg News, Scotiabank economists have published a report arguing that the burden of lowering inflation is falling on the private sector as the federal government continues to spend at high levels.
In recent months, the BoC has hiked up interest rates in an effort to minimize the growing inflation crisis in Canada.
“The output losses that the BoC must engineer to rein in inflation are falling disproportionately on the private sector,” said the report.
At the beginning of June, the BoC increased the benchmark interest rate to 1.5% and is expected to increase the rate by 0.75% the next time the central bank meets.
The report argues that if the government reduces government spending, it will allow the central bank to keep interest rates lower.
“Less government consumption would lead to a lower path for the policy rate and take some of the burden of adjustment away from the private sector,” the report reads.
In recent weeks, the Trudeau government has not expressed the desire to limit government spending – despite touting “fiscal restraint,” minister of finance Chrystia Freeland announced a $7 billion spending plan in order to ‘combat’ inflation.
The Trudeau government spent more money than any government in Canadian history, creating a $327.7 billion deficit in the fiscal year 2020/21 and a projected $144.5 billion deficit for the fiscal year 2021/22.
The inflation crisis has resulted in higher prices for various essentials like gasoline, cars, groceries, lumbar and more.
A May Angus Reid survey found that half of Canadians are struggling to feed their families, and a Mainstreet Research survey found that 25% of Canadians are eating less amid Canada’s inflationary spiral.
Worries that the economy will fall into a recession stem from concerns that the interest rate hikes from the BoC will have undue harm on businesses – leading to mass unemployment.
According to a Maru Public Opinion poll, most Canadians believe that if we aren’t already in a recession, we are close to it.
