Inflation: Companies benefit, households pay off

By raising interest rates to induce an economic slowdown, the Bank of Canada favors the financial community and lets Canadian households shoulder the economic burden of fighting inflation.

While inflation hit a 30-year high at 8.1% in June, Canadian corporate earnings have risen by more than 10% over the past year.

“The interest rate hike will have no direct impact on rising oil prices or big corporate appetites for big profits. Not only does the Bank of Canada’s current strategy fail to address the root causes of inflation, but it could also be counterproductive if it leads to a slowdown in the economy. Workers in particular will bear the brunt of such an approach. The unemployment that would result from a drop in economic activity would be catastrophic for Canadian households,” warned Pierre-Antoine Harvey, associate researcher at the Institute for Socio-Economic Research and Information (IRIS) in a report published on Thursday.

“Rather, the current inflation should be seen as an additional signal of the need to accelerate the energy transition, fight unproductive wealth concentration and revise downwards certain regressive tariffs,” criticized the IRIS in its document.

In fact, 54% of inflation is explained by increases in transportation costs. The 28% average annual increase in gas prices alone explains 44% of direct excessive inflation.

“Unlike households, whose wages are stagnant, companies appear to have largely used the context of inflation to raise their prices. This maneuver would have allowed them to make record profits while helping to accelerate inflation,” said Guillaume Hébert, researcher at IRIS.

To protect purchasing power, several measures could be taken by the government.

IRIS advocates raising wages to inflation levels and affirms that this is the most effective measure to counteract the problems caused by the general rise in prices.

“Some fear that rising wages will help install a spiral in which inflation feeds wage increases, which in turn would lead to high inflation for an extended period. However, adjusting wages to the cost of living does not have a sustained amplifying effect on inflation,” argues the report.

The creation of public sector jobs in the field of energy transition would make it possible to reduce the population’s dependence on fossil fuels and thus protect them from rising oil prices.

Public sector jobs could be a safety net in times of inflation crises.

“Public service is not a burden but a significant economic and social lever. The resources used for this must be considered as ‘income’ and not as ‘expenditure”, stresses IRIS

The institute also recommends that governments lower tariffs and prices that they control, such as hydroelectric tariffs or the cost of childcare services.

Finally, IRIS proposes to support local authorities to set up free public transport in their area.

These stimulus measures could already be a game changer for Canadian households, but measures must be taken to limit the ability of companies to hike prices excessively, such as: Researcher Guillaume Hébert assures that, for example, increased monitoring of industry concentration and the fight against consultative practices on prices.

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