That’s it, here we are! The reference point is now somewhere in 1983, at the end of the mythical years of the Great Inflation! It almost feels like one make newhorror version, by Back to the Future.
We haven’t experienced a similar price increase for almost 40 years. In 1983, 7.7% inflation, as announced yesterday in Canada, was pretty good news. We then gradually descended from a peak of almost 12%.
The problem today is that it is increasing with a slight acceleration. That’s what’s scary. How much worse will it get before it gets better? How to dominate the beast?
Energy, mother of all evils
Allow me to add the usual nuance, we must understand that “May” inflation does not reflect an increase in prices compared to April, but actually to May 2021. We are talking about growth over 12 months. Prices rose 1.4% in a month, still a sizeable jump.
The rise in the Consumer Price Index (CPI) spares no category, but it’s the rise in gasoline prices (+48%) that hurts the most. The increase in energy prices in general (+34.8%) has an impact on transport (+14%) and food (+9.7%).
For more rate hikes
The prospect of a three-quarter point (0.75%) interest rate hike by the Bank of Canada on July 13 is no longer in doubt. We know the principle, this increase will gradually affect the entire credit market, which will cost more.
The remedy seems counterintuitive: increase the financial burden to counteract the rising cost of living. It also seems ridiculous given the phenomena fueling inflation on the supply side: Russia’s invasion of Ukraine, the disruption of supply chains in China and, increasingly, climate change.
At the same time, demand remains strong despite the significant increase in the cost of living and the prevailing economic pessimism.
The best example is vacations abroad. It’s true that we owe something, but you must be motivated to fly abroad, with skyrocketing transport and accommodation prices, lengthy customs checks, the rush to tourist attractions, not to mention the steps necessary to obtain a passport that it’s worth it survivor. These obstacles don’t seem to stop anyone.
The economic logic does not always correspond perfectly to our complaints, which is quite legitimate in other respects. We would like more oxygen to be delivered to offset the effects of inflation, but to regain our purchasing power we must first learn to live in apnea while it lasts.
The central banks are trying to cool demand with the most important instrument (interest rates). On the other hand, we’re asking governments to send us checks, give us tax cuts, lower taxes (especially on gasoline, which has proved ineffective where tried).
I don’t mind, I love life too. But that would run counter to central bank efforts.
It will be cheaper to give us some breathing room when the economy slows down. It’s still running at a good speed there.
As for people with speechlessness, if help is needed now, it needs to be targeted. We still have to hold our breath for the others.