Economic showdown this week will set the tone for 2022

An exciting week of economic events points the way to 2022, as Canada's finance minister takes the field amidst a flood of data, while the U.S. is expected to finally fire a shot at soaring inflation.

Chrystia Freeland kicks off a flood of economic news for the new year

Expect fans to cheer and boo after Minister of Finance Chrystia Freeland kicks off an exciting week of economic fun and games — from a fiscal update and housing market data to retail sales numbers and a U.S. play to tackle global inflation. (Sean Kilpatrick/The Canadian Press)

For the many Canadians who watch the economy the way some people watched the battle that led to Sunday's Grey Cup, this is an exciting week.

In a rush to get business completed before the year ends, Canada's finance minister, Chrystia Freeland, kicks off an economic blitz.

On Monday, she outlined the federal government's new relationship with the Bank of Canada. And on Tuesday afternoon, she presents a fractured Parliament with her outlook for the economy and for spending in the coming year.

But that's not all for 2022

But that's not all that awaits economy devotees. Also this week, due to an accident of the calendar, Wednesday will offer a new set of hotly awaited — and hotly debated — economic data that will also help set the tone for 2022.

Canadian inflation figures are out and face close scrutiny following last week's report of staggering price rises in the United States. Also Wednesday, U.S. Federal Reserve chair Jerome Powell is widely expected to reveal what he is going to do about those rising prices in the coming year, something that will affect Canadians, too.

So far there's no sign of a winter slowdown in Canada's hottest real estate markets as the last national figures of 2021 come out on Wednesday, along with expectations of higher mortgage rates. (Michael Wilson/CBC)

Not to be left out, the other economic issue that rivals inflation — house prices — gets its final reveal before the new year as the Canadian Real Estate Association (CREA) rolls out its latest data on Canada's pricey market, and the Canada Mortgage and Housing Corporation releases the latest numbers on housing starts.

Two other economic indicators — retail sales and manufacturing orders — are both expected to show the economy remains strong.

While some of us may have had trouble working up much enthusiasm for the weekend wrestling match between the victorious Winnipeg Blue Bombers and the ruffle-furred Hamilton Tiger-Cats, for the economy-minded, the rest of the week will provide not just excitement but fodder for hours of holiday debate.

In some ways, Freeland's first economic item of business this week, creating a new set of rules for the Bank of Canada, was a matter of housekeeping.

Allowed to run hotter?

Some commentators had feared a delay in announcing the new rules signalled big changes afoot, such as adopting U.S. rules where Congress requires the Federal Reserve to consider equally the inflation rate and unemployment when choosing when to adjust interest rates.

In the event, it seems that a continuing battle with COVID-19 and a parliamentary election were the real reasons for the delay.

"This is not a dual mandate," Freeland said sternly at a Monday news conference with her chief central banker, Tiff Macklem. "We are very explicitly, with this mandate renewal, choosing not to do that."

But the implication of the change — which gives the bank leeway to consider unemployment as well as the inflation target when setting rates — is that Macklem and his team will be permitted to let the economy run a little hotter than it otherwise would if they decide jobs are at stake. Otherwise, there would be no reason for the change of wording.

On Wednesday, Macklem gets an entire news conference of his own to try to explain the subtle differences that the rewording imply.

WATCH | What to expect in Tuesday's fiscal update:

What's expected in the fiscal update, Bill 21 back in the spotlight | At Issue

1 year ago
Duration 13:42
The At Issue panel discusses what to watch for in the federal government's upcoming fiscal update and how it might address inflation. Plus, the panellists look at Quebec’s Bill 21 and why it’s getting renewed attention in Ottawa.

Lots more to come about Wednesday, but first a mention of the second appearance in Freeland's economy double-header, when at about 4 p.m. on Tuesday, just as Toronto and Montreal markets close, the minister presents her fiscal and economic update — the first look at the books since the April budget and the first since September's election.

While some government critics have expressed outrage over what they see as reckless overspending to deal with the COVID-19 crisis, a report late last month by University of British Columbia economist Kevin Milligan, writing for the C.D.Howe Institute, suggests Freeland may have more room to manoeuvre.

"The budget forecast nominal GDP growth for 2021 at 9.3 per cent," Milligan wrote. "Recent estimates have nominal growth more than three per cent greater than that, which would give Ottawa a windfall [of] as much as $10 billion."

The ideal solution to COVID-19 spending

Milligan suggested that could mean the books will show a declining debt-to-GDP ratio, long seen as the ideal solution to COVID-19 spending, where the economy grows so much that debt shrinks as a proportion. The problem, he warns, is if a lot of that rise in revenue is due to inflationary price rises rather than actual new business activity.

That said, there are many signals the economy is strengthening as businesses report optimism, workers find jobs, wages rise and observers cite early signs that supply chain constraints, and thus inflation, may be easing.

Which leads us to one of the most hotly awaited statistics expected Wednesday: Canadian inflation. After last week's U.S. inflation rate hit 6.8 per cent — the largest increase in four decades — the outlook for Canadian inflation is expected by institutional economists to come in at a relatively paltry 4.7 to 4.9 per cent.

U.S. Federal Reserve chair Jerome Powell, shown last month in Washington, D.C., is expected to issue a statement on Wednesday on whether the central bank will take concrete steps to cut stimulus and increase interest rates in 2022. (Elizabeth Frantz/Reuters)

That is still high enough for consumers and businesses to feel the pinch of shrinking spending power, but with gasoline prices cooling off, Canadian inflation may begin to show signs of peaking. That said, after recent underestimates by economists for both Canadian GDP and Canadian jobs, everyone will be anxious to hear Statistics Canada's actual numbers.

But perhaps even bigger news on inflation that will affect not just Canadians but the global economy is a statement on Wednesday by Federal Reserve chair Powell on whether the U.S. central bank will take concrete steps to cut stimulus and increase interest rates in 2022.

More than half the economists polled by the financial news company Bloomberg say he will signal that 2022 will be the year that business and personal lending, including mortgages, will begin to cost more. Canadian borrowers whose rates are partly made in the U.S.A. will want to know how fast that could happen.

So far, sales data from Canada's hottest markets, including Vancouver and Toronto, shows few signs of cooling. The CREA data out on Wednesday looks at the whole country. If, as some say, borrowers confront successive hikes in the face of persistent inflation, prices could weaken in the new year.

For economics fans, this will be an exciting week, but unlike Sunday's football final, when it is all over, it will be harder to be quite sure who won.

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.