Time to FES Up!

2 minute read

And just like that, things are happening.

Finance Minister and Deputy Prime Minister Chrystia Freeland will provide a fall economic statement (FES) in the House of Commons on Tuesday, December 14th at 4:00 pm. Eagerly anticipated by hill watchers who wondered whether the government’s slow start would impact FES timing. Everyone can now breathe a sigh of relief.

But don’t hold your breath for very much in the way of policy. Early media reports suggest a slimmed-down FES focused on providing Canadians with a siimple snapshot of the nation’s finances. That seems like an appropriate approach for the moment, and typical in a post-election cycle. The more policy-heavy ones tend to come in off-years, when the government is looking for another communication opportunity to demonstrate their commitment to delivering on election promises.

The Omicron variant has led to a re-emergence of lockdown fears and put a damper on the economic recovery that was starting to take hold in Q3. This is on top of other diverse and unprecedented challenges including record-breaking rains in BC and trade flare-ups with the United States. But rather than rush to a response, it is wise for the government to take a beat to carefully analyze and understand the risks, and determine the right response – likely in Budget 2022.

But the one issue that could throw everything out the window is inflation.

While certainly not as bad as some have made it out to be, the challenge is real. (Though if the cost of energy is removed, it actually doesn’t look nearly as bad – and is well below the US figure, but we digress). What makes it such a tricky issue for the government is that it is largely out of their control. Broadly speaking, it is a global phenomenon and the reasons for it are global in scope. That doesn’t mean the government is helpless. Look for ‘pocket book’ promises to be featured in Budget 2022 because , as some analysts suggest, this phase of inflation could get worse before it gets better.

Interestingly, the Bank of Canada’s five-year inflation mandate is scheduled to be announced the day after the FES, on Dec. 15th. Minister Freeland indicated she is keenly interested in offering up her own views on what the Bank should include in its target-making basket.

While it’s no surprise the Conservative Party, and in particular their persistent shadow minister for finance Pierre Poilievre, has taken the inflation issue up with gusto. His attempts at tying it to the Prime Minister and his government haven’t inflicted any political damage … yet.

While Ms. Freeland prepares for a quiet, simple fiscal update, the building inflation storm may prove to be a powerful narrative to be reckoned with as the government looks to sail smoothly into the holiday season.

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