Uncertainty about the potential effects of the rapidly spreading Omicron variant are clouding the federal government’s forecasts for when soaring inflation and supply chain bottlenecks will ease.
Deputy Prime Minister and Finance Minister Chrystia Freeland on Tuesday tabled her fall fiscal update amid a backdrop of escalating global fears about the spread of the Omicron variant, the latest mutated strain of the virus that causes COVID-19.
In the update, Freeland said recent economic estimates had suggested inflation might fall back to the country’s two per cent target late next year. The rise of Omicron in the weeks since means those forecasts may change.
“The path forward will depend on a number of tailwinds and headwinds, which could either bolster the recovery or push it off course. Of concern, the global health situation has deteriorated in recent weeks, with resurgences of COVID-19 in some regions and the emergence of a new variant, Omicron,” according to the update.
“Risks associated with COVID-19 continue to cloud the outlook.”
Setbacks to Canada’s economic recovery, the update warned, cannot be ruled out.
In fact, rising cases among countries with high levels of vaccination could lead to more public health restrictions, which could worsen supply chain struggles and inflation risks.
“While it is too soon to determine the economic impacts of the recent resurgence of COVID-19 and the Omicron variant, these developments nonetheless pose a downside risk to Canada’s economic recovery,” the update said.
“The global health situation remains fragile.”
Conservative Leader Erin O’Toole took aim at the forecasting in a speech in the House of Commons, suggesting Canadians are being “priced out of their own lives” because of rising inflation.
“Today the Liberal government shared a snapshot of Canada’s economic position. The minister is actually hoping she can fool Canadians into thinking everything is fine,” O’Toole said.
“What they neglected to point out was how their mismanagement has led this country and Canadian families to the edge of an economic cliff.”
“That crisis is out of control,” O’Toole argued.
NDP Leader Jagmeet Singh accused the government of protecting the ultra-rich instead of prioritizing policies that would address the costs of groceries, gas and housing.
“Under Justin Trudeau, the average cost of a home is 38 per cent higher than it was a year ago and Canada has the worst record on the climate emergency in the G7,” Singh said in a statement.
“In today’s fiscal update, Justin Trudeau decided to keep spending billions on fossil fuel subsidies instead of helping workers and communities’ transition to a renewable future. An NDP government would have made different choices,” he added, pointing to vows to tax people profiting off the pandemic.
The 2021 fall fiscal update offers markedly more cautious sentiments than 2020’s, when Freeland suggested the economic recovery would start “deep into 2021.”
Freeland had noted last year that while there remained “a lot of hard slogging ahead,” there was now “light at the end of the tunnel.”
“After winter comes spring,” she had said. “The seeds we have sown, and will continue to plant in the weeks and months ahead – to protect Canadians’ health and save our jobs and businesses – will help us come roaring back from the coronavirus recession.”
And while there are few who had predicted reopening global economies would be as simple as flipping a switch, the snarls and false starts of doing so amid a continued – and in many places, worsening – pandemic appear to be adding a thickening layer of uncertainty for policymakers.
Mostafa Askari, chief economist with the Institute of Fiscal Studies and Democracy at the University of Ottawa, acknowledged forecasting inflation is “extremely difficult” to do right now even before the risk factors of the Omicron variant are tallied.
“People are getting scared and that is causing more uncertainty and unease. Uncertainty is never good for planning,” Askari told Global News.
“Exactly how this is going to affect different aspects of their policy decisions, I don’t know. I don’t think they can do much about inflation.”
Supply chain issues have been a key source of the inflationary pressures driving up costs for Canadians on a wide range of goods and services, Askari said.
Freeland acknowledged that as well and, in the fiscal update, said the federal government is eyeing new resources to try to alleviate some of the snarls in Canadian supply chains.
Can the government ease supply chain problems?
There is no one answer to fix the supply chain problems. A combination of factors are worsening the problem, including increased strain on ports and too few shipping containers to keep up with growing global demands for goods in lieu of experiences.
But in Canada specifically, the recent devastating floods in British Columbia are exacerbating the impact of global problems on Canadian shores.
The flooding knocked out vital railroads and highways across the province, and cut off the Port of Vancouver from the rest of the country as well as communities from one another.
While the work has been ongoing to restore those routes, it is expected to take months before they are back to normal, and the fiscal update is promising new funds to jumpstart work on easing bottlenecks in the struggling supply chains.
Fifty million dollars is being earmarked this year through the National Trade Corridors Fund for “targeted calls for proposals” that will “assist Canadian ports with the acquisition of cargo storage capacity and other measures to relieve supply chain congestion.”
“Further details on the targeted call for proposals will be announced in the coming weeks,” officials said.
Overall, there are few clear guideposts for when Canadians can hope to see costs of living return to normal – and a warning that inflation could stay above the Bank of Canada’s two per cent target for a while yet.
“Going forward it is likely that price pressures will exceed this threshold for a period of time in most advanced economies, including Canada, before returning to more normal levels,” the update said.
Prime Minister Justin Trudeau called the newly identified Omicron variant “scary” in a year-end interview with RED FM on Tuesday, suggesting that next summer will be better.
He urged Canadians to “hang in there” in a message that mirrored the words he offered as Canadians buckled down to face a COVID-19 winter just a little over one year ago.
Those comments come after he said on Monday that updated public health modelling forecasting the expected explosive growth of the Omicron variant has officials “very concerned.”
Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, warned on Tuesday the variant is spreading “at a rate we have not seen with any previous variant.”