Political rhetoric on inflation is out of touch with reality, experts say

Prices in Canada are rising — and they're rising fast.

Statistics Canada released its measure of inflation, the Consumer Price Index (CPI), earlier this week. It reported that prices are now 6.7 per cent higher than they were this time last year.

It's the largest spike in the CPI since January of 1991, the year the government introduced the GST.

"Prices increased against the backdrop of sustained price pressure in Canadian housing markets, substantial supply constraints and geopolitical conflict, which has affected energy, commodity and agriculture markets," StatsCan said.

The Bank of Canada has raised its benchmark interest rate by 0.5 per cent to 1 per cent, citing the need to curb inflation.

The rising cost of living has caught the attention of many prominent politicians. But is what they're saying about it all true?

Conservative leadership candidate Pierre Poilievre, a former finance critic who is widely considered to be the front-runner in the race, has made inflation a central part of his campaign.

Poilievre claims the Trudeau government's approach to spending and taxation is a major force driving inflation.

"Trudeau's big spending, deficits and taxes have driven up inflation, which in turn is now driving up interest rates," Poilievre said in a recent news release.

"I would reverse JustinFlation with common sense policy, including: axing the carbon tax, phasing out inflationary deficits by ending wasteful spending and cancelling new promises and removing the gatekeepers to make more of what cash buys — energy, food and housing."

Is Poilievre right? Is government fiscal policy driving up prices?

Jean-Paul Lam, an economics professor at the University of Waterloo and a former assistant chief economist at the Bank of Canada, said government spending is one of many factors pushing prices up — but it's a relatively modest one.

Economic support programs related to the pandemic are a significant reason the federal deficit is so large now; the deficit was projected at $53 billion in the latest budget. But that doesn't come close to explaining the rate of inflation we're seeing now, he added.

"This is a minor factor ... I don't think the fiscal position of the government, although it has deteriorated significantly over the last two years, is a key factor to inflation right now," he said.