Analysis | Why is inflation higher in Quebec?
Quebec Finance Minister Eric Girard, will present its budget on March 21.
Over the past eight months, the level of inflation in Quebec has been higher than in Ontario five times. Inflation has been falling since last summer in Ontario, while Quebec rebounded last fall. Are the checks sent by the Legault government to the population fueling inflation in Quebec more than elsewhere in the country?
It must be said that the gap between the two provinces has been growing for three months, while the inflation rate in January was 6.2% in Quebec, against 5.6% in Ontario. Moreover, from October to November, as inflation slowly eased, the rate jumped from 6.4% to 6.8% in Quebec, while it fell in Ontario from 6.5% to 6, 4%.
Finance Minister Eric Girard announced on November 9 tax-free payments ranging from $400 to $600 for 6.5 million Quebecers, payments that have were made from the end of November.
Is there a link, then, between these checks and the rise in inflation in Quebec? I asked several economists to help us see things more clearly.
The first possible explanation for this inflation gap between the two provinces: the real estate market is more sensitive to rising interest rates in Ontario than in Quebec. Inflationary pressure is easing faster in Ontario in this sector, and construction is slower in the Toronto area than in Greater Montreal.
The National Bank's chief economist, Stéfane Marion, also points out that the inflation rate in Greater Toronto was 5.7% in January, while that of Greater Montreal was higher, at 6. 6%. The differential is explained by the inflation of the housing component, Stéfane Marion writes to me.
Another explanation: it is quite possible, according to Stéfane Marion, that the decline in Greater Toronto also reflects the historic drop of 17% in the daycare cost component at the level of the national consumer price index over one year, which should not be reflected in Quebec [because the program already existed].
Inspired by the Quebec system, the federal government has launched a massive child care program across Canada to reduce child care costs by an average of 50%, with the goal of bringing them down to $10 per day. day in 2026. This measure is already helping to slow inflation.
Statistics Canada reported on February 21 that among the elements that contributed to slowing general inflation in January in the country, prices for the category childcare and maintenance services fell by 7.9%.
Laurentian Bank Securities Chief Economist Sébastien Lavoie agrees: Federal child care program and housing downturn are driving down inflation faster in Ontario than in Quebec.
Sébastien Lavoie does not exclude, for his part, an impact of the amounts paid by Quebec during the last year on the level of inflation. He recalls that the Legault government injected $9 billion in new spending and financial support during the 2022-2023 fiscal year.
Some of these measures go beyond the support for the most vulnerable,” he told me in an email. Thus, the growth of disposable income and the propensity to consume are more sustained than in other provinces.
The following graph, which was prepared by Sébastien Lavoie's team, shows that Quebec injected much more money than the other provinces for inflation protection measures.
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In an interview with Economy Zone on February 21, Sébastien Lavoie said that the checks sent to the Quebec population are certainly more inflationary, while the cuts gasoline taxes in Alberta and Ontario reduce inflationary pressure. However, once these taxes are reinstated, inflation will pick up in these provinces.
The inflation rate is 5% in Alberta. It was 6% at the end of 2022.
For his part, Stéfane Marion is not convinced of the link between Legault government checks and inflation. I cannot conclude that the Quebec-Ontario differential on the consumer price index is mainly linked to CAQ cheques, he wrote to me.
Same story at Desjardins. I think it's a bit early to say anything about the impact of policies in Quebec, writes economist Hélène Bégin to me, who believes that other factors are certainly at work.
It particularly targets the labor shortage. At the service level, which is more labor intensive, the wage component is a key factor that certainly weighed in the balance. Throughout 2022, wage increases have been faster in Quebec due to the higher job vacancy rate [than in all of] Canada and Ontario and the lower unemployment rate.
< p class="e-p">Economists do not agree on the inflationary effect of the checks sent by the Legault government in 2022. We can continue the analysis by closely monitoring the effect of the budget which will be presented on March 21.
The CAQ has promised a tax cut of one percentage point starting in 2023, which will cost nearly $2 billion, according to the estimate of the Research Chair in Taxation and finances of the University of Sherbrooke.
For a person who earns $30,000 per year, the tax reduction would be $109, according to the projections made in the CAQ's electoral platform in 2022. For a person earning $50,000, the tax reduction would be $329 this year. And for a person who receives $100,000, the tax reduction would be $810.