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Media Wall News > Economics > Federal Spending Inflation Canada Pandemic Surge
Economics

Federal Spending Inflation Canada Pandemic Surge

Julian Singh
Last updated: July 17, 2025 9:11 PM
Julian Singh
3 days ago
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The grocery store receipt that made you wince last weekend? The housing costs eating deeper into your monthly budget? A significant portion of Canada’s inflation woes can be traced directly back to Ottawa’s pandemic spending decisions, according to a revealing new analysis that challenges the government’s preferred narrative around rising costs.

A report from the Fraser Institute released this week delivers a stark conclusion: federal pandemic spending far exceeded what was necessary for economic stabilization, ultimately becoming a primary driver of the inflation surge that’s been squeezing Canadians since 2021.

“The federal government’s response to the pandemic went well beyond filling the gap in GDP caused by the recession,” said Livio Di Matteo, economics professor at Lakehead University and co-author of the study. “This excess spending contributed to inflation rates not seen in four decades.”

The analysis found that Ottawa pumped nearly $600 billion into pandemic relief measures between 2020 and 2022, roughly doubling what was economically justified by the pandemic downturn. This fiscal flooding of the economy came just as supply chains were breaking down globally, creating the perfect conditions for inflation to take root.

While the Bank of Canada has been aggressively raising interest rates to combat inflation since March 2022, the report suggests these painful monetary measures might have been less severe if fiscal policy hadn’t created such significant inflationary pressure in the first place.

The data paints a telling picture. Canada’s pandemic spending as a percentage of GDP substantially outpaced peer nations including the United States, Australia, and most European economies. This explains why Canada’s inflation rate remained persistently stubborn even as international pressures like energy costs began to ease in 2022.

Economic data from Statistics Canada supports this assessment, showing that domestic demand-driven inflation has played an increasingly important role compared to external factors as the inflation crisis has evolved. The agency’s detailed breakdowns indicate that housing, food, and services—areas most directly influenced by domestic monetary conditions—have continued driving inflation even as global commodity pressures subsided.

Finance Minister Chrystia Freeland has repeatedly defended the government’s pandemic spending approach, arguing that supporting Canadians through unprecedented economic disruption was the moral imperative. “We will never apologize for being there for Canadians in their time of need,” Freeland stated in response to previous criticism.

However, economists across the political spectrum increasingly acknowledge that the scale of spending, particularly in later pandemic phases, contributed to today’s economic challenges.

“The initial emergency response was absolutely necessary,” explained Armine Yalnizyan, economist and Atkinson Fellow on the Future of Workers. “But the continuation of broad-based programs rather than targeted support as the recovery began created excess demand in an economy already facing supply constraints.”

The implications extend beyond just higher prices at checkout counters. The Bank of Canada’s inflation-fighting interest rate hikes have pushed mortgage payments to record levels and slowed economic growth to near-stagnation. Many Canadians now face a painful economic hangover after the pandemic spending party.

For small business owners like Priya Sharma, who runs a housewares store in Hamilton, the ripple effects continue. “First we had supply chain nightmares during the pandemic. Then inflation hit us from all sides—shipping costs, material costs, rent increases. Now high interest rates are crushing consumer spending,” she explained. “It feels like we’re paying twice for the same crisis.”

The report’s authors suggest several lessons for future economic crises. They recommend more targeted emergency support programs, stronger automatic fiscal stabilizers, and clearer exit strategies for extraordinary spending measures.

The findings arrive at a particularly sensitive moment politically. The federal government faces growing public discontent over affordability while simultaneously confronting pressure to reduce deficit spending that totaled $47 billion last fiscal year.

Conservative finance critic Jasraj Singh Hallan seized on the report, calling it “confirmation of what Canadians already know—that Liberal mismanagement is directly responsible for the affordability crisis crushing families.”

What’s particularly notable about the Fraser Institute’s analysis is how it aligns with warnings issued by some economists even during the pandemic’s early phases. In May 2020, former Bank of Canada governor David Dodge cautioned that emergency spending measures would need careful unwinding to avoid inflationary pressures.

Central banks worldwide, including the Bank of Canada, also share responsibility for maintaining ultra-low interest rates too long while expanding their balance sheets through quantitative easing. This monetary policy amplified the effects of fiscal stimulus, creating what some economists describe as a “perfect storm” for inflation.

For everyday Canadians, the academic debate over monetary and fiscal policy translates to very real financial stress. Recent polling shows affordability remains the top concern for voters, with 67% reporting they’re worse off financially than before the pandemic.

The lasting lesson may be that economic crisis management requires both immediate compassion and long-term prudence—a delicate balance that future governments will need to strike more effectively. As Canada continues navigating the aftermath of unprecedented economic intervention, the true costs of pandemic-era decisions are still being tallied on cash registers and mortgage statements across the country.

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TAGGED:Canadian Economy ImpactFederal SpendingFraser InstituteInflation CanadaInflation ChallengesPandemic ReliefTrump politique économique
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