Inflationary rhetoric is as dangerous as the real thing

CHELSEA, QUE.—Inflation—the word, at least—is a powerful political weapon. So are rising interest rates. And, while neither are welcome economic developments, as a rule, they have widely different consequences for various groups in different parts of the country. That’s why grand claims, confident predictions, and facile remedies need to be discounted. That would pretty well shut down discussion on Parliament Hill and in the media, however, and what’s the fun in that? Far more entertaining to fan fears, point fingers, and scare the living bejesus out of everyone following along at home. Inflation now sits at around 6.9 per cent, down slightly from August. To prevent it from rising further, by dampening consumer spending, Bank of Canada Governor Tiff Macklem last week increased the base interest rate once again—the sixth time in recent months—to 3.75 per cent. The simple, mostly unchallenged, idea is that higher rates will discourage borrowing to purchase discretionary items, delay that big home or car purchase, and depress consumer spending generally. No more slapping the new air fryer on your already maxed-out credit card. As demand slows, lagging supply chains will have a chance to catch up and shelves will be restocked. With less demand, and more supply, prices return to more normal levels. That’s the theory, but, like all blunt instruments, higher interest rates can cause collateral damage. If they are too high, for too long, they risk stalling economic activity to the point of recession—with attendant job loss and general despair. The Bank of Canada is walking a tightrope: higher interest rates, but not too high. But is this latest hike as scary as grim-faced talking heads suggest? It really depends. The numbers won’t be terrifying to those who recall interest rates of 21 per cent in the early 1980s, accompanied by 12 per cent inflation, both driven by the international oil price shock, among other factors. That was disruptive, many lost jobs and homes—especially in Alberta—but most people tightened their personal spending, borrowed from relatives if they could, and survived. Those days are all but forgotten in the current era of low-to-barely-discernible inflation and negligible interest rates. That hiatus is clearly over, but how bad is the current situation? Again, that depends. For comfortably middle-class families, this winter will mean higher grocery and energy bills, potential upticks in mortgage payments, and increases in the cost of discretionary items. Some will opt not to fly south, others will delay buying that new car, or boat, or hot tub. They will grumble, but survive. Many older retired Canadians who own their own homes or condos outright, don’t routinely spend much dining out or on entertainment, and have well-funded, indexed pensions, will feel a pinch, but only a pinch. Indeed, high-income earners, generally and always—and that includes most of the denizens of Parliament Hill, those designing responses to the current squeeze and those reporting on it—will wince at the elevated cost of frozen raspberries at the supermarket, perhaps, but probably buy them anyway. At worst, they might switch to cheaper wine for a time. But the people most hurt by inflation, unsurprisingly, are the poor and the near-poor, including young people with low wages and no job security, elderly single women, new arrivals to the country, retail and seasonal workers. Rural and small-town Canada—already struggling with disappeared manufacturing jobs, or lumber mills, or mine layoffs—can ill afford increases in the cost of living. They don’t tend to appear at parliamentary committees, or write op-eds decrying government policy. And the largest component in the current inflationary surge is food, where prices have escalated by 11 per cent—the largest jump in 40 years. Food, of course, is not a discretionary item. And there are few cheaper alternatives to $7 bags of apples, or $5 boxes of cereal, as costs for meat, cheese, bread, and other basics remain elevated. Lower-income earners also carry the largest credit card debt and rising interest rates will be especially painful. The same is true of those trying to borrow to buy a house, or those with variable mortgages and not a lot of breathing room. They could be one job loss or layoff away from foreclosure.Those who rely on cars or trucks for employment cannot escape the volatile gas prices, either. They keep inching higher as oil companies register record profits, and the price of crude dips and surges. Who is to blame for this mess? The Liberal government, says federal Conservative Leader Pierre Poilievre, in a constant and shrill refrain. The war in Ukraine, say Big Grocery and Big Oil and Gas. Greedy, corporate price-gougers in the food and energy sector, who are manipulating world events—including supply chain problems—to enrich their bottom lines, say critics on the left. The pandemic, say federal and provincial governments, looking for cover. How about this? Nobody is uniquely responsible. How about moving beyond the futile, repetitive exchange of ideological antiquities to relief—at least for the most harshly affected. As for everyone else: paying 20 per cent more for a Chinese-made hepa filter than you would have last year is annoying, but not the end of the world. Losing your job, if this thing turns into a full-blown recession, could be. So far, the Trudeau government’s response to has been low-key and targeted at the most vulnerable. Parliament recently passed a doubling of the GST rebate for 11 million of the poorest taxpayers—but only for six months. Then there is the two-year plan to cover $650 in dental care for children in low-income families—a humane, basic expansion of health care, inflation or not, and one intended to outlast the current crisis, although there are no guarantees. This practical reform, long overdue (and scheduled to become a national plan eventually) was forced on the Trudeau government by the NDP as a price for their support. The Conservatives are opposed. But another federal relief effort—a $500 one-off cheque for renters—is just a costly token; the Conservatives are right about that. Obviously, it will help some cash-strapped tenants for the moment, maybe for one month, but does nothing to address the shortage of affordable housing in most big cities in the country. But “dental and rental” makes a catchy slogan. For their part, the Conservatives’ sole policy offering—almost lost in volcanic outrage at Liberal perfidy—is elimination of the carbon tax, which Conservatives and their oil industry overlords have never liked anyway. The tax is set to increase in April, which Poilievre declares will leave Canadians freezing in mid-winter, donning shabby cardigans and burning the furniture for warmth. In fact, the carbon tax is still a relatively small part of rising energy costs, and rebates to those living in provinces with no carbon pricing plan—Ontario, Saskatchewan, Manitoba, and Alberta—will rise in tandem with the increased tax. While it is true that home heating costs will increase for the roughly 50 per cent of Canadians who heat with natural gas, those increases are also driven by the market—a rapid increase in natural gas prices in recent months as supply tightens. And, yes, this time the war in Ukraine is implicated. The war has interrupted the supply of Russian natural gas to Europe, and the United States has moved to fill the gap by exporting some of its natural gas overseas. In return, Canada is now sending 10 per cent of our domestic supply to the U.S., which somewhat constricts what is available for local customers and—along with other factors, including carbon taxes and inflationary pressures—has increased prices for most consumers. But again, the impact varies from region to region. In some provinces, the natural gas market is somewhat regulated, in others it isn’t. And while natural gas is widely used for heating and cooking in western Canada and parts of Ontario, Quebec, and the Atlantic provinces rely on electricity, and, in diminishing numbers, oil furnaces. On top of that, renewables—including heat pumps, solar and wind, and passive-energy homes—are making inroads. The NDP’s most salient contribution to the debate has been calling out corporate greed and manipulation—long a factor in gasoline prices, but now a suspect in escalating food costs, too—and urging a windfall tax on those making record profits during the pandemic (which is not over). It is a good idea, that will not restore fiscal health overnight, but could, at least, impose a measure of fairness. In response to these and other complaints about food prices, Parliament unanimously endorsed an investigation by the Competition Bureau into the grocery sector—although, lacking a specific complaint, the bureau has no power to impose remedies, or even force chains to provide information. So, essentially, an impotent response intended to give the impression of action. The same day the motion passed, Loblaw, which recorded a 40 per cent increase in its first-quarter profits, announced a price freeze on its No Name brand items until the end of January—another public relations gesture that is hardly a boon to hard-pressed consumers, given how much prices have already escalated in recent months. So, do we batten down the hatches, toss life-savers to those in danger of drowning, and ride out the storm? That appears to be the Liberal plan. No one in mainstream politics is proposing more of the massive, broad-based relief that was crucial in seeing so many individuals and businesses through the beginning of the pandemic. That, suggests Finance Minister Chrystia Freeland, would only feed inflation, which would trigger more interest rate increases, which would end in recession. Meanwhile, the Conservatives are blaming the Canada Emergency Response Benefit and other measures—which, according to the Bank of Canada, helped prevent a recession and much more serious economic injury, as well as reducing poverty to record lows—for the current economic instability. Conservative finance critic and deputy leader Melissa Lantsman accused the Liberals of “flooding the market with cheap cash.” How soon they forget that they, in fact, voted in favour of those extraordinary measures. Finally, according to the Conference Board of Canada, the economies of Calgary, Edmonton, and Saskatoon are thriving, largely thanks to booming fossil fuels and agricultural sectors, as Canadian farmers make up for shortfalls in Ukrainian wheat production, especially. So, not all gloom and doom, not everywhere—and especially not in many corporate head offices. At his well-attended press conference on Oct. 26, Macklem predicted a period of discomfort followed by a return to two per cent inflation by 2024 and a healthy and growing economy. It is only an educated guess, but it illustrates a fundamental truth about inflation: it is also a psychological phenomenon, driven by individual fears and expectations. We can try to be optimistic, but first we have to tune out the sound and fury. Susan Riley is a veteran political columnist who writes regularly for The Hill Times. The Hill Times

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Inflationary rhetoric is as dangerous as the real thing

Nobody is uniquely responsible. How about moving beyond the futile, repetitive exchange of ideological antiquities to relief—at least for the most harshly affected.

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