Harper warns of long-term inflation risk

Thu Feb 26, 2009 4:01pm EST
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By Allan Dowd

BURNABY, British Columbia (Reuters) - The stimulus measures being taken by governments around the world could trigger higher inflation, although there are no long-term risks of inflation in Canada, Prime Minister Stephen Harper said on Thursday.

But Harper, who was in western Canada to make his own infrastructure funding announcement, said despite the risks posed by stimulus measures, it is essential that governments spend more money to protect their economies during the current financial crisis.

"When governments and central banks are aggressively lowering interest rates and spending large amounts of additional money and doing large amounts of borrowing, there are risks as the economy improves that you would have inflation, that you would have crowding out of private investment," Harper told reporters.

"We are worried about the short term and we've got to get things right now. I don't think in Canada we have long-term risks of inflation or crowding out because we've had better monetary policies (and) a stronger balance sheet and fiscal position."

Last month Canada's minority Conservative government presented a budget that it said would rack up C$64 billion ($51 billion) of deficits over the next two years.

Harper needs the support of one opposition party to pass the budget and warned against too many delays.

"Let's be very clear on this. These are confidence measures. We are not going to mess around with this," he said.

"Those votes are before Parliament so that this money gets flowing quickly. If the opposition doesn't like that they will find themselves in an election. So I tell them, 'Get it done, get it passed', and we'll get on with stimulating this economy," he said.   Continued...

<p>Canada's Prime Minister Stephen Harper speaks during Question Period in the House of Commons on Parliament Hill in Ottawa February 24, 2009. REUTERS/Chris Wattie</p>