Thank you, Mr. Chair. It's a real pleasure to be here. Thank you for inviting me.
There's no doubt that consumer price inflation is a major concern in Canada today. When I wrote a warning back in the fall about the inflation problem, it was at about 4.7%, and now we're at 5.7%, the latest number from Stats Canada, which came out last week. These are the highest inflation rates we've seen since the early 1990s. They're rising. The issue is real, pressing and getting worse.
Now, we can all agree that inflation is a problem. I think where disputes arise is in trying to understand its causes and its roots. I'll just say very briefly that, in my judgment, the roots of the crisis go back to the very unconventional policies followed after the global financial crisis: QE, the large-scale asset purchases; interest rates at or near zero; and forward guidance, which is signalling about future policy. In layman's terms, central banks made credit available almost for free and flooded the financial system with cash.
Loose monetary policies had their own perverse effects, which were to distort the real economies of places like Canada and bloat the financial sectors, and, with assets like property in fixed supply, we've had huge asset price inflation bordering on bubble territory. In some places, we've had stock markets at record highs.
I contend that in fact we have two inflation problems: CPI inflation and the asset price inflation that makes, for example, even owning a home increasingly out of reach for poor and middle-class households, and for a big increase in wealth inequality.
Now, today's high CPI inflation is quite simply a response to the explosive growth from the Bank of Canada's money supply. To check the data, M1+, meaning currency in circulation plus chequing accounts, basically, is growing at 14% year on year. That's a jaw-dropping number, well above the 5% to 6% that would be consistent with low, stable inflation. The current interest rate, 0.5%, is well below the Bank of Canada's own estimate of the neutral rate that would keep inflation steady at about 1.75% to 2.75%, so the central bank's [Technical difficulty—Editor]
I would just say that the U.S. Fed has seen the danger signal south of the border. Mr. Powell said last week that he's acutely aware “of the need to return the economy to price stability and determined to use...tools to do exactly that”. Those are pretty strong words.
Governor Tiff Macklem did conclude his remarks here at this committee earlier this month by saying that the bank was going to “control inflation”, but it's hard to understand how the bank can do that in a case where its policy stance is highly inflationary by any measure.
I'll just conclude by saying that inflation is indeed a global problem, but our inflation problem is very much made at home here in Canada. The solution lies at home, and it can't be outsourced.
Thank you very much, Mr. Chair.