War Is Fuelling Inflation in Rare Economic Period, Says StatCan Official

A sign displays $1.87 as the price of a litre of regular grade gasoline at a Petro-Canada gas station in Burnaby, B.C., on March 2, 2022. (Darryl Dyck/The Canadian Press)

Inflation in Canada was already at the highest in over 30 years in January, but Russia’s invasion of Ukraine is now putting additional pressure on prices, a Statistics Canada official told a House committee on Friday.

“Looking ahead, the CPI [consumer price index] is likely to remain elevated. Fears surrounding the global oil supplies sent oil prices soaring in early March when Russia's invasion of Ukraine escalated,” said Greg Peterson, assistant chief statistician at Statistics Canada, as he testified before the Standing Committee on Finance.

“We're expecting higher gas prices to have a significant effect on March’s CPI unless the situation changes quickly.”

Peterson also said the crisis could affect other sectors, among which are appliances and electronics that rely on key materials. He pointed to Ukraine being the largest producer of neon gas, which goes into the production of computer chips.

Ukraine’s role as a major breadbasket is more well-known. The reduction of its export of grains and vegetable oil combined with international shipping disruptions are likely to further increase the price of food, Peterson said.

Liberal MP Julie Dzerowicz asked Peterson about the current period of time, coming on the heels of governments’ pandemic responses that shut down economies.

“Would it be fair to say that right now, we are living in fairly unprecedented times, or at the very least, that the situation that we currently find ourselves in hasn't occurred in probably about 100 years?” she said.

“I can tell you about the 30 years that I've worked at Statistics Canada ... we haven't been through the kind of an economic period like this,” Peterson replied.

CPI Measurement

Statistics Canada measures inflation through the CPI, which analyzes the price of a basket of goods and services. Countries measure inflation differently by not looking at the same data points, and so direct comparisons are not always adequate.

The Liberal government insists that inflation is a global phenomenon and points out that it is higher in other countries, such as the United States. The U.S. CPI reached 7.9 percent in February, whereas Canada’s was at 5.7 percent.

But Canada does not include the price of used vehicles in its CPI, only using the price changes of new cars as a proxy for used ones. The United States reported a 41.2 percent year-over-year increase in February in that sector, the hottest commodity other than fuel oil at 43.6 percent.

Scotiabank released an economic paper on March 16 that called the price proxy practice “useless.”

“Whereas Canadian policymakers sometimes imply that Canada is better at managing CPI inflation than, say, the US by pointing to lower official Canadian CPI inflation relative to US CPI inflation, the reality is that this is just because of mismeasurement issues,” says the Scotiabank paper written by Derek Holt, vice president and head of capital markets economics.

Holt says that once used cars are properly captured in the Canadian CPI, inflation could be at around 8 percent this summer.

Drawing from that paper, Conservative MP Adam Chambers asked Peterson if he’s expecting such a figure once used cars are added. Peterson said he would be surprised, noting Statistics Canada would have a working paper out shortly to address the issue.

The agency announced it was working on adding the actual price of used cars to the CPI in January.

‘More Money Chasing Fewer Goods’

As is often the case during finance committee meetings, Conservative MPs sought to confirm with the witness that government policies such as deficit spending and pandemic stimulus are a major driver of inflation.

“Stimulus spending by government, that's also inflationary, correct?” MP Ed Fast asked Peterson.

“I think what we've seen over the course of the pandemic is household wealth has increased. We saw a large increase in savings rates kind of across all sort of income quintiles, and that would put some households in a position to buy more stuff,” Peterson answered.

Conservative MP Philip Lawrence said this led to “more money chasing fewer goods,” which creates inflation.

Household wealth increased despite the economy shutting down and goods and services not being produced, leading to a spike in demand and decrease in supply.

The government has defended the support provided to Canadians during the pandemic, saying it helped sustain individuals and businesses and allowed the economy to bounce back more effectively.

Cost of Living

An Ipsos poll commissioned by Global News suggests that the issue of inflation and the cost of living have become top of mind for Canadians as the government will present its budget on April 7.

A majority (53 percent) said that “help with the soaring cost of every day needs due to inflation” is one of their top priorities. Other issues included lowering taxes (45 percent) and investment in health care (40 percent).

“Canadians are in many parts of this country, really, really feeling the pressure, especially people with more precarious employment, women, people with kids at home—people who are under real pressure as a result of what they see as an unplanned, rising cost of living that they’re now having to manage,” said Darrell Bricker, CEO of Ipsos Public Affairs, Global reported.

“And they’re looking to this budget for a signal from the government that they got it and that they’ve got some ideas about how to deal with it.”

So far, the government has resisted pressure from the Conservatives to not increase the carbon tax on April 1, which drives up the price of gas, or to suspend the GST on the price of gas.

Prime Minister Justin Trudeau was asked about his plan to address the rising cost of living in a press conference in Vancouver on March 29.

"We know there are lots of pressures faced by everyone right now, this government will continue to have people's backs," he said, pointing to the national childcare system on its way, income supports and support for families, and investments in housing.