Canada reported a CAD4.3 billion budget deficit from April to August compared with a CAD3.9 billion surplus in the same period a year earlier, as program spending rose faster than revenue and interest costs surged, according to some of the last figures available before a pending fall fiscal update.

Public debt charges rose 28% or CAD4.1 billion the finance department reported Friday from Ottawa, reflecting the central bank's campaign of 10 interest-rate hikes and rise in global bond yields. Program spending rose 4.8% or CAD7.4 billion while revenue gained 1.4% or CAD2.4 billion.

For the month of August the deficit of CAD3.1 billion was wider than last year's CAD2.5 billion shortfall.

Finance Minister Chrystia Freeland will soon present a fall fiscal update that she has said will be narrowly focused on addressing a housing squeeze, something that's helped put her Liberal government behind Conservatives in public opinion polling. She also faces pressure from NDP members propping up the Liberal minority government to expand publicly-funded healthcare.

Her March budget estimated a CAD40 billion in the fiscal year that began April 1. Investors criticized the failure to seek a balanced budget as the economy emerged from the pandemic. (See: MNI INTERVIEW:Busted Canada Debt Goal Means Pain Later-Ex Aide)

The government has some room for housing measures, a former budget officer has told MNI. (See: MNI INTERVIEW: Canada Budget To Offer Housing 'Base Hits'-Page) The economy's solid growth earlier this year has helped, with the government reporting earlier this week the deficit for the fiscal year that ended in March was CAD35 billion, lower than an earlier estimate of CAD43 billion.

Growth appears to be fading with GDP turning negative in Q2 and the BOC predicting output gaining less than 1% next year. Governor Tiff Macklem said Wednesday that while he could be done raising rates after hiking to the highest since 2001 at 5%, he may need to act again if inflation remains troubling. Spending across federal and provincial governments is starting to run ahead of potential growth, Macklem said, noting “it’s going to be easier to get inflation down if monetary and fiscal policy are rowing in the same direction.”