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inflation | Checks from Alberta and Quebec could hurt, experts say



Provinces that offer one-time aid to their people to help them cope with soaring prices risk worsening inflation rather than easing it, economists say.

According to them, this strategy fails to control inflation, since this additional influx of money ensures that people can continue to spend and that the demand for products and services remains high, thus preventing the highest inflation in several decades to decline.

If people had less money to spend while prices are high, it would weigh on inflation and help the Bank of Canada’s goal of reducing pressure on the financial system, they continue.

Annual inflation stood at 6.9% last month in Canada, compared to 8.1% in June.

Giving money to households is “likely to contribute to the problem rather than solve it,” argued Travis Shaw, senior vice president of public finance at DBRS Morningstar.

“It goes against what the Bank of Canada is trying to do with monetary policy in trying to reduce the pressure on the system and ultimately reduce inflation,” he said.

His remarks come a day after Alberta Premier Danielle Smith announced plans to distribute $600 over six months to families in her province with annual incomes below $180,000, for each child under 18 years old. The same income threshold and benefit will apply to seniors.

Mme Smith will also index income supports to inflation, provide an additional $200 in rebates on consumers’ electricity bills during the winter months, and suspend the entire provincial fuel tax for at least next six months.

To complement the $2.4 billion plan, the province announced an investment in food banks and the expansion of a transit pass program for low-income people.

“Too many moms and dads have to choose between nutritious food for their kids and making their growing mortgage payments. Many seniors are choosing between filling their necessary prescriptions and filling up their vehicles,” Smith, during a speech announcing the measures.

“As a province, we cannot solve this inflation crisis alone, but with our strong fiscal position and balanced budget, we can provide substantial relief so that Albertans and their families are better able to weather this storm. »

Ideally time-limited measures

With a plan like Mme Smith, economist Marc Desormeaux, of Desjardins, believes that “there is a risk that households who receive this money will only spend it and that this will contribute to demand and exacerbate inflation”.

Provinces that want to use transfers to households, he believes, should ideally make them time-limited measures that target low-income people, who tend to be hardest hit by inflation.

“If these transfers and relief measures are earmarked for people with lower incomes, the risk of this stimulating inflation is less,” he argued.

Mr. Shaw noted that Smith was ahead of Alberta Finance Minister Travis Toews’ expected financial update and economic statement Thursday. Albertans will also be plunged into a general election in six months.

“These payments will be $100 for six months, which brings us right up to the spring election date,” Shaw said.

Mme Smith is not the only prime minister to turn to such one-off aid to ease inflation.

When tabling his spring budget, Quebec Finance Minister Eric Girard announced a one-time payment of $500 to each adult whose annual income was $100,000 or less in 2021. Then, he A few weeks ago, the CAQ government indicated that it would send checks for a maximum of $600 by the end of the year to people who earn less than $104,000 a year.

In September, then-Premier of British Columbia John Horgan announced that about 85% of the province’s residents would benefit from an increase in the payment of the Climate Action Tax Credit, a move valued at $1500 per year for a family of four.

He also announced an increase in child allowances for about 75% of British Columbia families with children under 18. This increase should be a temporary measure extending from January to March. For a single parent with one child, this is an increase of $58 per month.

Mr Horgan’s successor, David Eby, last week announced a $100 credit on electricity bills and claimed the government would provide an “affordability credit” to low- and middle-income residents.

Mr. Shaw believes that other provinces could emulate such measures. “I would expect that, if inflation remains persistently high, we could see additional measures at the provincial level or an extension of existing measures. »

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