Economic showdown this week will set the tone for 2022

For the many Canadians who watch the economy the waysome people watched the battle that led to Sunday'sGrey Cup, this isan exciting week.

In a rush to get business completed before the year ends, Canada's finance minister,ChrystiaFreeland,kicksoff an economic blitz.

On Monday, she outlinedthe 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 for2022

But that's not all that awaits economy devotees.Also this week, due to an accident of the calendar, Wednesday will offer anew set of hotly awaited and hotly debated economic data that will also helpset 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.

Not to be left out, the other economic issue that rivals inflationhouse pricesgets its final reveal before the new yearas 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 excitementbut fodder for hours of holiday debate.

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

Allowed to run hotter?

Some commentators had feared adelayin announcing the new rules signalled big changes afoot, such as adoptingU.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 parliamentaryelection were the real reasons for the delay.

"This is not a dual mandate," Freelandsaid 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 implicationof the change which gives the bankleeway to consider unemployment as well as the inflation target when setting rates is that Macklemand 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.

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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 Quebecs Bill 21 and why its getting renewed attention in Ottawa.

Lots more to come about Wednesday, but first a mention of the second appearance in Freeland'seconomy 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 firstsince September'selection.

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 monthby University of British Columbia economist Kevin Milligan, writing for the C.D.HoweInstitute, 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 threeper 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 couldmean the books will show a declining debt-to-GDP ratio, long seen as the idealsolution 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 signalsthe economy is strengthening as businesses report optimism, workers find jobs, wages rise and observers cite early signs that supply chainconstraints, 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 paltry4.7 to 4.9 per cent.

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 toshow 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 onWednesday 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 Bloombergsay 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 confrontsuccessive hikesin the face of persistent inflation, prices could weakenin the new year.

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

Follow Don on Twitter @don_pittis