Canada’s inflation rate low, but the economy doesn’t balance

Story Highlights Most vulnerable segments are seniors, low-income households Youth, those with daycare and women more vulnerable Canada’s economy is expected to grow 2.5% in 2018 and 1.9% in 2019 WASHINGTON, D.C. — Canada’s…

Canada's inflation rate low, but the economy doesn't balance


Story Highlights Most vulnerable segments are seniors, low-income households

Youth, those with daycare and women more vulnerable

Canada’s economy is expected to grow 2.5% in 2018 and 1.9% in 2019

WASHINGTON, D.C. — Canada’s 2018 inflation rate of 1.8% is very low, down by more than half from its 2016 peak of 3.4%. However, as inflation drops, some of the federal government’s priorities are being lost, namely youth, low-income households and women.

As economists, we’re not inclined to go back and change monetary policy all that much in the face of inflation dropping. But our sense is that the prime minister should have some thoughts on this, to respond accordingly.

If Prime Minister Justin Trudeau were to emphasize the need to ensure that young Canadians can get through their education without at least some negative impacts from credit card debt, which is becoming a drag on young people’s earnings, things might start to change.

Heck, even minimum wage workers would benefit from the prime minister outlining his ideas and priorities to achieve lower inflation — maybe by investing in better, quality education. And what about making a tangible attempt to alleviate the trauma inflicted on young children by precarious employment?

On the broader front, we note that the prime minister — who often cites the minimum wage and microfinance (small businesses with tiny loan obligations) as a good idea — could and should have more focused efforts to reduce the root causes of people falling into poverty — including a decent wage, affordable housing and effective safety net programs.

The Prime Minister’s Message

Prime Minister Trudeau has many tools at his disposal, including tax code changes, that he could use to potentially affect inflation. For example, as he has often stated, one of his goals is to grow the economy so that people’s after-tax income rises. To get to this higher goal, he can subsidize employment and increase minimum wage, address income inequality (including gender inequality) by doing better job-training programs and by fixing Canada’s broken social safety net.

Another tool is to reduce social spending in areas such as housing, social programs and child care. The federal government did better to reduce poverty during former Prime Minister Paul Martin’s tenure, and Canada’s success is part of his legacy. If Justin Trudeau is interested in this legacy, reducing poverty will be key to hitting his goal of lifting millions of Canadians out of poverty.

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