Errors in explaining impact of carbon tax on inflation shake confidence in Bank of Canada

Bank of Canada’s blunders

The Bank of Canada’s unconventional approach to communicating its stance on carbon pricing, particularly its sporadic responses on social media, has raised eyebrows.

Its responses tend to delve into semantics rather than directly addressing criticisms. It’s puzzling to witness the Bank of Canada engaging in this manner, as it calls into question its supposed non-partisan and impartial position in the increasingly polarized political debates surrounding the carbon tax.

This strategic blunder underscores the Bank of Canada’s mishandling of its communication related to carbon taxation.

The saga began in September when Bank of Canada governor Tiff Macklem casually mentioned during a speech in Calgary that the carbon tax contributed to about 0.15 percentage points of inflation without providing supporting data or documentation for this assertion. A similar statement had been made before the finance committee in February, but it hadn’t garnered much attention at the time.

However, after Macklem’s September statement, proponents of the carbon tax began using his assertion as a benchmark to dismiss the concerns of carbon tax critics and convince Canadians that carbon taxing has little or no inflationary impact. Despite the absence of data, models, or comprehensive analysis, many economists rallied behind this assertion.

This issue remained largely unexamined until Dalhousie University requested an explanation. The bank’s prompt response revealed that the 0.15 ratio only considered three components of the Consumer Price Index – natural gas, heating oil, and gasoline – all of which are retail-taxed items. This estimate failed to account for second-round or pass-through effects across the entire supply chain of other major CPI components, indicating a narrow focus in their calculations.

On Oct. 30, Macklem introduced a new angle, stating that eliminating the carbon tax would lead to a one-time drop of 0.60 percentage points in the inflation rate due to accumulated tax increases over the years. This essentially means that, with our current inflation rate at 3.8 percent, the carbon tax is responsible for 16 percent of inflation.

Although the governor claimed this had been the bank’s message for some time, he had not explicitly disclosed this ratio until now. This statement, due to its vagueness, raises several important questions that demand thorough examination by reporters, intellectuals, and observers.

For instance, it is crucial to understand the specific data and economic models used to arrive at the 0.6 estimate for the impact of eliminating the carbon tax on inflation. Will this estimate change as the carbon tax approaches the $170/mt mark in 2030, nearly triple its current rate? It is equally important to request a breakdown of the assumptions and variables considered in these calculations.

Moreover, sensitivity analysis is vital: how does the estimate respond to changes in key assumptions like the carbon tax level and market dynamics? What historical or international examples support this estimate, and how do they align with the Canadian economic context? Equally important is an inquiry into whether the Bank considered the potential second-order effects of removing the carbon tax, such as changes in energy consumption and production, shifts in investment patterns, or impacts on other industries.

Why hasn’t the bank analyzed other components of the CPI, such as food, and considered the behavioural changes resulting from fiscal adjustments across the supply chain? Prices undoubtedly influence consumer choices.

The bottom line is that transparency is paramount, and we need clear answers. As Canadians, we must question the data presented to us rather than passively accepting it. Blindly accepting data without scrutiny can lead to disastrous policies. While decarbonizing the economy should be a priority, recent government decisions regarding heating oil tax and rebate enhancements have left many skeptical about the moral authority of carbon taxing. Canadians deserve clarity, especially when the planet’s well-being comes at a cost. We need to know the price tag.

In essence, the carbon tax communication challenges at the Bank of Canada highlight a fundamental misstep – the quantification of the carbon tax. The bank is now committed to this stance, fully aware of its consequences. It gave a number, and it is too late now.

In the meantime, the Bank of Canada should refrain from participating in political discussions on social media or any other platform. Doing otherwise will only impact its credibility, making it appear as a crown corporation trying to control the narrative.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Philanthropy is a powerful force for change

National Philanthropy Day

In the face of adversity, the strength of a community is often revealed through the generosity of its members.

Philanthropy, the act of giving back to society, is the cornerstone of rebuilding and supporting communities in their times of need. This was evident in the aftermath of the devastating wildfires that swept through the Central Okanagan in 2023.

As homes turned to ashes and lives were shattered, it was philanthropy that illuminated the path toward recovery. These wildfires left a trail of destruction in their wake, and the very essence of our community was challenged.

In times like these, it is the spirit of giving that binds people together. The acts of kindness witnessed in the wake of the Central Okanagan wildfires were not merely transactions but powerful gestures of empathy and solidarity. Neighbours helped neighbors, strangers became friends, and a strong sense of community emerged. Philanthropy provided the means to nurture this newfound unity, ensuring that the community did not just recover, but emerged stronger and more resilient than before.

Over the last three months, the Central Okanagan Foundation has engaged with local businesses, individuals and other organizations, mobilizing resources to address the immediate needs of the community. The foundation continues to support long-term initiatives, laying the groundwork for a more secure and prosperous future through community-led solutions. Philanthropy, when driven by the needs of the community, becomes a powerful force for change.

The wildfires that struck this area in 2023 highlighted the indispensable role of philanthropy in building and supporting communities and showcased the transformative power of giving, emphasizing the importance of empathy, solidarity, and community-led solutions.

As we reflect on the lessons learned from Central Okanagan’s experience, let us recognize the significance of philanthropy in shaping a better, more compassionate world. By supporting philanthropic endeavours, we become active participants in the journey toward a brighter future, where communities thrive and the spirit of generosity continues to illuminate the way forward.

As we celebrate National Philanthropy Day this month (Nov. 15), let us all recognize the remarkable impact of philanthropy, reminding us of the essential role it plays in shaping the world we live in. It is a day to honour the individuals, organizations, and communities that dedicate themselves to the betterment of society, demonstrating the boundless potential of human kindness.

On Nov. 15, let us not only acknowledge the immense contributions of philanthropists but also recognize the everyday heroes who, through their acts of kindness and selflessness, uplift their communities.

By celebrating National Philanthropy Day, we acknowledge the transformative power of giving, inspiring others to build stronger, more compassionate communities.

Abbie Norrish, is the manager of grants and community initiatives at the Central Okanagan Foundation.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Are carbon taxes a threat to our food supply chain?

Carbon taxes and food

Political desperation can be a powerful thing, as we witnessed last week in Ottawa.

The federal government not only put a hold on the carbon tax applied to heating oil for three years, it also announced a doubling of the rural supplement in the carbon tax rebate program.

In mere minutes, Ottawa not only transformed the carbon tax into a negotiable political lightning rod but also lent credence to those who have voiced doubts about the narratives surrounding carbon pricing.

For starters, the government’s decision to increase rural supplements in the carbon tax rebate program implicitly acknowledges the argument that suggested the rebate might not have been sufficient to cover the associated costs.

It is clear that carbon tax proponents in academic circles are now receiving less attention from Ottawa. As the cost of living becomes a matter of survival for many Canadians, Ottawa is beginning to heed the concerns of the broader population, not just environmental activists.

Carbon pricing undeniably carries significant weight in Canada, serving as a critical policy to address climate change concerns. In particular, the agri-food sector faces an arguably substantial threat from climate change, leaving inaction as an undesirable option. Decarbonizing the economy is rapidly becoming a global priority, and Canada must play its part. Despite the unpopularity of carbon pricing in some quarters, it stands out as a relatively lesser evil for the economy. However, when it comes to food, the stakes are notably higher.

Since the Trudeau government has paused the carbon tax for heating oil, a compelling case can be made for examining the impact on our entire food supply.

It is imperative that we conduct a rigorous evaluation of how carbon pricing affects food affordability for Canadians and the long-term competitiveness of our industries. Unfortunately, comprehensive analyses in this regard have been conspicuously lacking, with much of what we’ve encountered appearing to be influenced by biased narratives, particularly from organizations like the one-sided Smart Prosperity Institute and Climate Change Centre, which often rely on a limited pool of intellectual activists.

Nevertheless, our research team at Dalhousie University, comprised of several researchers, has begun shedding light on the scarcity of research in this critical area.

What needs to be underscored is how the public discourse surrounding carbon pricing and food affordability has been misdirected. Rather than asking whether the carbon tax is an easy scapegoat for high food prices, the more pertinent question is whether the carbon tax negatively impacts the competitiveness of our food industry.

Quantifying the direct and straightforward impact of carbon pricing on retail food prices is challenging, if not impossible, given the many factors influencing prices, including consumer behaviour and weather. Suggesting that carbon pricing has a direct, linear effect on retail food prices would be misleading. Prices fluctuate for various reasons, so our primary focus should be on industrial and wholesale prices.

Our research has revealed a significant contrast between industrial and wholesale prices. Industrial prices are notably more susceptible to cost fluctuations, which unquestionably encompass the influence of carbon pricing. These cost increases within the supply chain are far more quantifiable and trackable. In recent years, the Industrial Product Pricing Index related to food has outpaced the Consumer Price Index for food prices, a trend that has been largely overlooked.

Carbon pricing has led many to become passive when assessing environmental politics, failing to critically question the figures presented. For example, the Bank of Canada recently made claims about carbon pricing that went unchallenged. It estimated that only 0.15 percent of inflation could be attributed to carbon pricing, but this calculation considered only the direct impact of the carbon tax on three products included in the consumer price index: gasoline, heating oil, and natural gas. It did not account for second-round or pass-through effects.

What was concerning is that not a single reporter questioned how the Bank arrived at this conclusion until Dalhousie University sought this information. It’s as if everyone was sleepwalking.

While the outright elimination of the carbon tax is not advisable, a temporary pause on any carbon pricing policies affecting our food supply chain should be considered until we gain a clearer understanding of their impact. Such a measure would be a responsible course of action at this time.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Canadians skeptical of official statistics, including food inflation rate

Low food inflation rate

Food inflation in Canada has dropped to 5.9 percent, a nearly one percent decline since August.

On the surface, this may seem like a reason to celebrate, with grocery trips becoming somewhat less burdensome on our wallets. However, the pressing question remains: do Canadians genuinely believe the data released by Statistics Canada?

A quick glance at social media commentary reveals Canadians’ skepticism toward the numbers churned out by Ottawa. Trust seems to be at an all-time low, and many rely on their gut feelings rather than official statistics. Even though the data indicates that food inflation is at its lowest since January 2022, the gap between general inflation and food inflation has shrunk to 2.1 percent, and several food items have become more affordable, Canadians remain unconvinced.

Interestingly, Canada boasts the second-lowest food inflation rate among G7 countries, trailing only the United States at 3.7 percent. But it appears that no matter how reassuring these statistics might be, Canadians want none of it. Skepticism and cynicism now dominate public sentiment toward the food industry, and it’s not hard to see why. Recent events, such as the legal disputes between major grocery chains, Metro, Loblaw and Weston, only serve to exacerbate the public’s distrust.

Metro has taken legal action against Loblaw and Weston, claiming they “falsely implicated” it in a price-fixing conspiracy regarding bread. That scandal, infamously known as the “bread cartel,” allegedly persisted for 14 years between 2011 and 2015, yet the Competition Bureau’s investigation, which began in 2015, is still ongoing.

While one company, Canada Bread, admitted guilt and paid a substantial fine this summer, the infighting between grocers continues. This ongoing turmoil harms the industry’s image and further erodes consumer trust.

Against that backdrop, the Canadian Centre for Food Integrity released its annual public trust report, a survey designed to gauge Canadians’ trust in the Canadian food industry. While the report addresses critical issues like inflation, food affordability, and sustainable industry practices, it overlooks pressing concerns affecting public trust today.

Notably, it says nothing about perceived profiteering, persistent farm waste, especially in dairy, trust in data provided by Statistics Canada, or potential collusion within the industry. This omission is unfortunate, as these issues are central to rebuilding public trust.

There is currently no concrete evidence of grocers, manufacturers, or other industry players profiteering. Nevertheless, 82 percent of Canadians believe profiteering is somehow associated with rising food prices, according to a recent survey. This perception poses a significant challenge that the industry must address promptly.

The legal disputes between grocers and a public trust report largely funded by the industry only add to Canadians’ skepticism about the food industry. Trust in the sector is fragile, and it is essential that every stakeholder, from government bodies to industry leaders, work diligently to rebuild it.

Ottawa’s efforts to stabilize food prices by encouraging grocers to lower prices are commendable, but the real issue at hand is trust. The food industry can no longer take Canadians’ trust for granted. Rebuilding trust will require transparent communication, greater accountability, and a commitment to addressing the public’s concerns, whether they relate to perceived profiteering, farm waste, confidence in data sources, or potential industry collusion.

It’s time for the food industry to not only deliver quality products but also to prove that it deserves the trust of Canadian consumers. Food inflation might be on the decline, but restoring faith in the industry is the true measure of success.

Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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