Manitoba's low inflation rate shows gas-tax cut is working, but it may also indicate a slumping economy

A low inflation rate in Manitoba is a sign the province's gas tax holiday is working, the premier is boasting, but the low rate may also demonstrate the economy he presides over is slumping.

Premier Wab Kinew hosteda news conference Tuesdayto celebrateManitoba's annualinflation rate dropping to 0.8 per cent in January, which is the lowest growth in a country struggling mightily with the rising cost of living.

Statistics Canada acknowledges in its reportthat Manitoba's decision toremove the provincial gas tax temporarily, beginning in January, has contributed to itslow inflation rate.

Kinew treated the report as validation of his government's decision.

"Governments can't do everything, and we recognize that, but governments can do some things. And I'm very proud that in the first few months of our administration taking office, we have done one thing to make your life more affordable,"Kinewsaid.

"Of course, the fight and the ongoing impacts of inflation are by no means over, but today the good news is we are taking action to help you and your family."

Gas-tax cut helps tank inflation

Starting on Jan. 1, Manitoba drivers stopped paying the provincial 14-cent-a-litre tax on gasoline and diesel fuel. The suspension will last for at least six months, withthe option to extend it for the duration of the year.

While Manitoba's inflation rate was already the country's lowest (1.7 per cent last December) prior to the gas tax holiday, Statistics Canada said in a statementthe lower price of gas was the "largestcontributor" to Manitoba's inflationary decline and had "roughly twice the impact" of the other categories the agency measures to assess inflation.

Other factors includethe price of groceries increasing at a slower rate year-over-year, and a lower cost for air transportation,Statistics Canada said.

"We expected to be able to lower the inflation rate in Manitoba by cutting the provincial fuel tax, and now we have the concrete evidence to back that up," Kinewtold reporters.

On a nationwide level,Canada's annual inflation rate slowedto 2.9 per cent in January, mostly due to a deceleration in the price of gas.

Manitoba's 14-cent-a-litre reduction on gas prices ultimately had an impact on the national inflationary average.

Shiu-Yik Au, an assistant professor of finance at the University of Manitoba's Asper School of Business, said the price of gas has an outsized role on the inflation rate because energy costs impactmany other factors, ranging from grocery prices to business expenses.

Still, a slowing inflation rate could be a sign that Manitoba'seconomy is slumping, Au said. He noted the Bank of Canada prefersinflation rate growth in the range of oneto three per cent.

"We're starting to drift towardthe too few, too little" category, Au said.

He said Kinew is right to talk up the provincial economy to bolster consumer confidence, since people tend to spend less when they feel the economy is sagging.

"If they cut back spending, it's going to slow down economic growth, which is going to lead to slightly lower inflation," Au said, while indicatingone month doesn'tsignify a trend on its own.

Deloitte Canada, however,recently pegged Manitoba's economic growth in 2024 at a"relatively subdued" 0.4 per cent. The firm anticipates a "rough ride" for the manufacturing sector andexpects households to "pull back" on spending, although the construction of various projects will offset some of those losses.

Asked about the various economic forecasts projecting some headwindsfor the province, Kinew said his government always wants to "see more growth" before again pointing to the low inflation rate as a good sign for the provincial economy.

PCs worry about other taxes

In a statement,Obby Khan, the Progressive Conservatives' finance critic, said the NDP government is "distracting" Manitoba with short-term tax relief while also letting school divisions raise school taxes without penalizing them and continuing to charge the federal carbon tax slated to increase in April on home heating bills.

Kinew wouldn't reveal on Tuesday if his government would extend the fuel-tax cut into the second half of 2024.

While he's encouraged by the lower inflation rate, the premier said interest rates remain high and are affectingpeople's ability to pay their mortgages and other debts.

Kinew said his government would help Manitobans so long as those impacts are felt, but he wouldn't specify how.