It must be said that the gap between the two provinces has been widening for the past three months, while January inflation was 6.2% in Quebec, compared to 5.6% in Ontario. In addition, from October to November, as inflation slowly eased, the rate rose from 6.4% to 6.8% in Quebec, while it fell from 6.5% to 6.4% in Ontario.
Treasury Secretary Eric Girard on Nov. 9 announced tax-free payments of $400 to $600 for 6.5 million Quebecers, payments made beginning in late November.
So is there a connection between these controls and the rise in inflation in Quebec? I asked several economists to help us see things more clearly.
The first possible explanation for this inflation differential between the two provinces: The real estate market in Ontario is more sensitive to rising interest rates than in Quebec. Inflationary pressures are easing in this sector faster in Ontario and construction activity in the Toronto area is slower than in the greater Montreal area.
The National Bank’s chief economist, Stéfane Marion, also points out that the inflation rate in the Toronto area was 5.7% in January, while that in the Montreal area was higher at 6.6%. The difference can be explained by the inflation of the housing component, Stéfane Marion writes to me.
Another explanation: It’s entirely possible, according to Stéfane Marion, that the decline in the greater Toronto area also reflects the historic 17% decline in the day-care cost component at the level of the national consumer price index over a year, which should not be reflected in Quebec [car le programme existait déjà].
Inspired by the Quebec system, the federal government launched a major childcare program across Canada to reduce childcare costs by an average of 50%, with a goal of reducing it to $10 a day by 2026. This measure is already helping to curb inflation.
Statistics Canada reported on February 21 that among the elements that helped slow overall inflation in the country in January, prices for the childcare and household services category fell 7.9%.
inflation checks?
Laurentian Bank Securities chief economist Sébastien Lavoie agrees: The federal daycare program and the slowdown in the housing market are causing inflation to fall faster in Ontario than in Quebec.
For his part, Sébastien Lavoie does not rule out an impact of the amounts paid by Quebec last year on the level of inflation. He recalls that the Legault government allocated $9 billion in new spending and financial support in fiscal year 2022-2023.
Some of these actions go beyond helping the most vulnerable, he tells me in an email. This means that disposable income and the propensity to consume are growing more sustainably than in other federal states.
The chart below, created by Sébastien Lavoie’s team, shows that Quebec has spent much more money on anti-inflationary measures than the other provinces.
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In an interview with Economy Zone on Feb. 21, Sébastien Lavoie said checks being sent to Quebecers are certainly more inflationary, while gas tax cuts in Alberta and Ontario are reducing inflationary pressures. However, once these taxes are reintroduced, inflation in these provinces will increase.
The inflation rate in Alberta is 5%. At the end of 2022 it was 6%.
For his part, Stéfane Marion is not convinced of the link between the Legault government checks and inflation. I can’t conclude that the difference in the CPI between Quebec and Ontario is mostly related to CAQ checks, he wrote to me.
Same story at Desjardins. I think it’s a bit early to say anything about the impact of Quebec’s policies, writes economist Hélène Bégin, who believes other factors are certainly at play.
It specifically targets labor shortages. In the more labour-intensive services, the wage component is a crucial factor that certainly carries weight. Throughout 2022, wage increases in Quebec were faster due to the higher job vacancy rate [que dans l’ensemble du] Canada and Ontario and the lower unemployment rate.
An inflationary budget?
Economists disagree on the inflationary impact of checks sent by the Legault administration in 2022. We can continue the analysis by closely monitoring the impact of the budget that will be presented on March 21st.
The CAQ has pledged a one percentage point tax cut beginning in 2023 that the University of Sherbrooke’s Tax and Public Finance Research Chair has estimated will cost nearly $2 billion.
For a person earning $30,000 a year, the tax cut would be $109 in 2022, according to CAQ voting platform projections. For a person making $50,000, the tax cut tax that year would be $329. And for someone receiving $100,000, the tax credit is $810.