Quebecers' purchasing power is deflating, interest rates are exploding and inflation seems out of control.
The loss of household purchasing power is likely to become the No. 1 subject of the Quebec election campaign, which will be launched at the end of August . Prime Minister François Legault has made identity and immigration his campaign priorities. He will probably have to revise his game plan.
A slowing economy, deflating purchasing power, skyrocketing interest rates, and inflation that seems out of control: this is anything but an ideal scenario for starting an election campaign. With the labor shortage growing across Quebec, the economic climate is deteriorating and confidence is declining.
The problem for politicians in the face of this state things is that governments must act thoughtfully, precisely, in depth, in the medium and long term. The gestures to be made are not the most visible nor the most profitable politically.
Increasing productivity, empowering businesses to improve technology and automation, investing in better port infrastructure and more resilient supply chains: these are real solutions to tackling supply issues, which are the basis of the current inflationary crisis.
Quebec must work to strengthen its own supply chains and reduce its dependence on costly imports. The province must also reduce its oil consumption and promote the electrification of transportation, a vision that could alleviate inflationary pressures.
However, it is difficult to explain such measures, the effect of which will take time to materialize or whose complexity is boring and beige. It is frankly much easier to lower taxes, to send checks, to reduce taxes, to freeze tariffs, and so on. It pays politically to announce simple, easy-to-explain tax cuts. But that doesn't mean it's the right thing to do to fight inflation.
Injecting more than three billion dollars in April and May 2022, as the Legault government did with its $500 credits granted to 94% of the population, is a measure that is necessarily inflationary. At a time when governments need to help central banks curb inflation, the adoption of such a measure does the exact opposite.
Lower taxes on gasoline, if only temporarily, as President Biden is proposing to do this summer, is also an inflationary measure. Political leaders who do so claim that these measures are there to help households cope with inflation. This is probably true for less affluent households.
However, far-reaching measures injected into the economy, like water coming out of a hose, are necessarily inflationary. And the measure presented as aid is no longer so when it actually fuels demand, which once again creates inflation.
Central banks acted very late. Errors in the appreciation of inflation have been made and the Bank of Canada has recognized it. The head of the US Federal Reserve, Jerome Powell, admitted to Congress that he had been surprised by inflation since last fall.
Once we made this observation , governments have a duty not to interfere with the work of central banks by adopting measures that help fight inflation and not fuel it. It is an arduous task in the middle of an election period, it must be admitted.
Despite all this, expect electoral inflation, to use the expression used by economist Mia Homsy, CEO of the Institut du Québec, on the show Economy Zone on Wednesday. The old electoral recipe, which consists in raining down investment promises, regardless of the state of public finances and economic problems, will be repeated once again.
We will have the pre-election report on August 15, announced the Minister of Finance, Éric Girard. At that time, we will have the Ministry of Finance's new estimate of economic growth and inflation, in addition to a look at the current and foreseeable state of public finances.
The Liberal Party of Quebec did not wait for the publication of this document to present its electoral platform and to announce a tax cut. And the Coalition avenir Québec is talking about both a check in December and a tax cut in 2023. These are very attractive political proposals, but they do absolutely nothing to mitigate the inflationary pressure.
While it is clear that the economy will be at the heart of the election campaign in Quebec, let's hope that the next political proposals will be better targeted: we must help people in need, low-income households income who have to deal with a major loss of purchasing power. We must contribute to business productivity, mitigate the negative effects of labor shortages and encourage projects that promote the reduction of greenhouse gas emissions.
Policy makers walk a fine line: how to properly intervene in the economy and not lose the confidence of the population, which is suffering from inflationary pressures? The period ahead, with rising prices, skyrocketing rates and a slowing economy, is not easy. It will certainly force political parties to rethink their strategy for the elections.
See you in August!