Bank of Canada's Macklem tells MPs government spending is not fuelling inflation
Bank of Canada governor Tiff Macklem told a House of Commons committee on Tuesday that federal spending is not working against the central bank's effort to control inflation, two days before the Liberal government tables its 2026 budget.
Asked by Conservative finance critic Michael Chong to assess the government's affordability measures, Macklem declined to comment directly. He said he speaks publicly on fiscal policy only when spending approaches unsustainable levels or when government action pushes against the Bank's inflation fight. "In the current circumstances, I don't think either of those criteria are met," he told MPs.
Macklem said the main force driving Canadian inflation higher is the global energy shock from the war in the Middle East. The Bank raised its benchmark rate by a quarter-point to 2.5 per cent last week. He also said Canada's economy is in a state of excess supply, meaning businesses are producing more than consumer demand can absorb, so transfers to households or other governments would not be expected to add significantly to inflation. Productive investment that expands long-term supply, he added, gives the economy more room to grow without stoking prices.
Conservative Leader Pierre Poilievre has blamed what he calls inflationary spending for the cost of living and urged cuts ahead of Thursday's budget, while his party wants federal fuel taxes suspended until the summer. Prime Minister Mark Carney's government has projected deeper deficits as it tries to pivot the economy away from dependence on the United States. Desjardins deputy chief economist Randall Bartlett said federal deficits do support higher inflation "but only to a very, very minor degree."
Senior deputy governor Carolyn Rogers, asked about her 2024 warning of a Canadian productivity emergency, said the metric drives wages and living standards and gives the economy a buffer against shocks. She said productivity has not improved sharply since, but business investment is showing "some promising indicators" that will take time to feed through.
