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The provinces are driving inflation now

For almost two years now, Pierre Poilievre has made political hay on rising inflation. As it cools nationwide, will the focus shift to what premiers like Danielle Smith are doing to feed it? Photo by Vek Labs (CC BY-NC-ND 2.0 DEED)

For as long as he’s been the leader of the Conservative Party of Canada, Pierre Poilievre has had the political winds at his back. Inflation, which peaked just a few months before he won on the first ballot in September 2022, has remained a persistent problem for millions of Canadian households, while the interest rate hikes used by the Bank of Canada to forestall it have driven housing costs through the proverbial roof. Timing isn’t everything in politics, but as with location in real estate, it definitely helps to have it on your side.

The winds, though, are starting to shift. The most recent Statistics Canada report showed inflation slowing to 2.8 per cent year-over-year in February, down from 2.9 per cent in January. “We’ve had two months in a row of inflation coming in under expectation,” RSM economist Tu Nguyen told Global News’ Craig Lord. “It’s a reason to celebrate.” That’s especially true in light of the data on grocery prices, where inflation came in below the overall rate for the first time since October 2021. Indeed, according to University of Calgary economist Trevor Tombe, “Over the past three months, food and goods inflation has been negative.”

Tombe’s crystal ball suggests inflation will drop to 2.2 per cent in April and actually fall below two per cent later in the year. As a result, he expects the Bank of Canada to start cutting interest rates soon, which will take at least a bit of the pressure off housing costs and further quell inflation. The vicious cycle of inflation, in other words, is in the process of becoming a virtuous one.

By the time Canadians go to the polls in 2025, affordability issues may no longer be top of mind. They might, for example, be far more consumed by a potential Trump presidency and Canada’s response to it. They might, after another summer of wildfires, drought, and other reminders of climate change, want to see an actual climate plan on the part of a potential government that goes beyond saying the word “technology” over and over.

And, of course, they might want to know how the next government proposes to fix the things that are actually “broken.” They might even notice that said things tend to fall under the control and guidance of Canada’s mostly conservative provincial governments, from health care and housing to education and electricity. Do they want a prime minister who’s going to actively help these provinces as they continue to chip away at the foundations of our social safety net or do they want one who’s actually going to call them out?

Inflation is on track to end 2024 below two per cent, and interest rate cuts are almost surely on their way sooner than that. So why do the provinces keep doing things that drive up the cost of living — and will Pierre Poilievre ever call them out?

As it happens, the provinces are also making inflation and affordability issues worse. Thanks to a number of decisions made by the UCP government, from the removal of rebates on electricity prices and fuel prices to its ongoing marketing efforts aimed at attracting people to the province, Alberta is expected to have the highest rate of inflation in the country — one that’s actually rising while the rest of the country’s falls. In Calgary, inflation last month was 5.1 per cent, while in Edmonton, it was 4.2 per cent. The key drivers? The cost of water, fuel and electricity, all of which fall under the purview of the provincial government.

In Ontario, meanwhile, Doug Ford’s ongoing refusal to do anything on homebuilding that won’t directly help his party’s donors is choking off new supply and pushing housing prices higher for longer. And as CNO’s own John Woodside noted in January, his government’s decision to overrule a recent ruling by the Ontario Energy Board (that required developers to pay for gas infrastructure in new homes upfront rather than spreading the cost out over 40 years) will almost certainly drive up energy costs for homeowners in the province. “I actually think the Ford government's sprawl agenda and subsidy of fossil gas is going to make the housing affordability crisis worse,” Ontario Green Party Leader Mike Schreiner said.

If there’s an affordability crisis that’s still haunting Canadians come next fall, it will almost certainly be driven by provincial governments, not the federal one. Poilievre will be far less willing to take on the premiers, given that it would require him to blame his political allies. That’s not necessarily good news for the Trudeau Liberals, but it’s far less bad than the news has been for a long time. Now it’s up to them to do something with it.

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