MNI INTERVIEW:Canada Has Some Self-Inflicted Inflation-Wilkins

Canada faces long-term inflation frictions unless the government breaks down internal trade barriers, limits deficits and eases transport bottlenecks restricting overseas exports, former central bank senior deputy Carolyn Wilkins told MNI. 

“When you have interprovincial barriers to trade like we do that add ten, fifteen percent to cost, and you think you're going to manage cost of living issues, or you're going to compete internationally, you're not," she said. "You're just making your life harder. And that shows up with all businesses of all sizes, it shows up in people in their homes.” (See: MNI INTERVIEW2: Food Prices Still Problem Across G7- Champagne)

Prime Minister Mark Carney's first year in office has delivered a refocusing of the government's energy towards longer-term projects, Wilkins said, but cautioned the public may lose patience waiting for the dividend. Canadians are already frustrated with an affordability squeeze made worse by provinces that for decades have kept up "crazy" trade barriers, while major projects are hindered by red tape, she said. 

“On the fiscal side, I can't stress enough how important it is that investors view Canada is being prudent," she said in an interview. "The debt-to-GDP ratio over time is going to matter as well as the quality of those deficits."

"And if it's being viewed as something that's building the country and its productive capacity, that's going to be viewed very differently by investors and rating agencies than if we're spending money on current, current consumptions or gazebos,” Wilkins said. Asked if there is also a risk that deficit spending crowds out private investment, Wilkins said so far the government's focus has been on creating conditions for companies to handle the major capital spends. 

NEED TO GET STRONGER

Wilkins joined former ministers Anne McLellan and Lisa Raitt to compile a scorecard of Canada's competitiveness, affirming longstanding trends of weak investment and worker productivity that can add to affordability pressures. Wilkins declined to discuss BOC policy, but the scorecard report noted that while households benefitted from a recent series of rate cuts, that may be coming to an end as forecasters see rates holding or perhaps rising later this year. 

Since leaving the Bank in 2020 Wilkins has taught at Princeton University and become a Bank of England advisor. Global investors see Canada as needing to regain some of its standing, she said.

"We have to improve our reputation as a place where you can do business and where you can do big projects and have a reasonable hope of timelines and sense of certainty that make the numbers work," she said. "In terms of the business case, that's not as strong as it needs to be right now."

“This geopolitical environment is a new era of fracture in the global consensus that we had for so many decades," she said. "Canada, if we do things right, it's going to look very attractive if people have confidence in in our economic foundations."