Bank governor: Carbon tax boosts inflation rate by nearly half-a-point

The Bank of Canada Governor says January's inflation rate would have been 4.7 per cent instead of 5.1 per cent if there was no carbon tax.

The federal carbon tax has boosted inflation by nearly half-a-percentage point, Bank of Canada Governor Tiff Macklem told members of the House of Commons Standing Committee on Finance in a letter obtained by Global News.

Macklem testified before the committee on March 3. While there he was asked by Conservative MP Philip Lawrence what the total impact of the carbon tax was on the rate of inflation. Macklem did not have that number with him at the time but promised a written reply to the committee, a reply he provided Friday.

“I committed to reply to the question of the impact of the carbon pollution charge on the rate of inflation,” Macklem wrote.  “According to the Bank’s calculations, if the charge were to be removed from the three main fuel components of the consumer price index (gasoline, natural gas and fuel oil) it would reduce the inflation rate by 0.4 percentage points. In other words, if that policy had come into effect at the start of the year, January’s inflation rate would have been 4.7 per cent instead of 5.1 per cent.”

Many federal Conservatives oppose the carbon tax and opposition to it has become a kind of ‘purity test’ in the Conservative leadership race. Perceived front-runner Pierre Poilievre has vowed to eliminate the carbon tax and blames the Trudeau government for rapid rise in inflation. Poilievre has attacked rival Jean Charest for introducing a carbon tax while he was Quebec premier. He also attacked Patrick Brown, the former MP and current mayor of Brampton, for speaking in favour of carbon pricing while he was leader of the Ontario Progressive Conservative party.

In his letter to finance committee members, Macklem repeated an observation he made at the committee’s March 3 meeting that the annual increase in what he called the “carbon pollution charge” was adding 0.1 points to the consumer price index each year. In other words, he said, had the federal carbon tax not increased, inflation in January would have been 5.0 per cent instead of 5.1 per cent.

“Governor Macklem confirmed what we already knew — the Liberal carbon tax is making life more expensive for Canadians,” Lawrence said Monday. “With inflation at the highest rate in 30 years and the cost of living crisis making everything from gas to groceries more expensive, the last thing Canadians need is a tax making life more unaffordable.”

Inflation and the increase in the cost of living is expected to be one of the issues the federal government will address in this spring’s budget.

“I think we certainly have to be be focused on the issue around affordability, as this government has been in the context of all kinds of other conversations around housing and child care and (the) drug benefit and other things,” Natural Resources Minister Jonathan Wilkinson said on Sunday’s episode of The West Block in response to a question about gas prices that have eclipsed $2 a litre in some parts of the country.  “I recognize that this is a big challenge for many Canadians, and we need to figure out … the best way to actually address (it).”