Tuesday, July 12, 2022

Economist suggests ways to help cool down inflation

In a recent Substack newsletter, economist Armine Yalnizyan – an Atkinson Fellow on the Future of Workers – examines inflation and ways the federal government can help Canadians.
While inflation is a worldwide phenomenon brought on, in part, by the COVID-19 pandemic and the ongoing war in Ukraine, Yalnizyan focuses on its effect in Canada and specifically how it is resulting in, “greater food insecurity and homelessness for the lowest income Canadians.”
She first divides the drivers of inflation for the rising costs of the most basic of needs – food, gas and housing – into three categories:
Demand: central banks are cooling demand very effectively by aggressive rate hikes, in Canada, the US and Europe. Higher interest rates have softened the escalation of housing prices, at long last; and already analysts are expecting a price correction in this item that takes the biggest bite out of household budgets, both high- and low-income.
Supply: Oil markets will see fresh supply from OPEC+ partners in the coming weeks, relieving some price pressure on gas at the pumps, though some of the price pressure comes from more people deciding that the pandemic needs to be over and it’s time to vacation and travel more to work and play in person.
Greed-flation: Corporate concentration means some players are in a position to set prices, commensurate to passing through higher costs and sometimes at a pace that exceeds increases in input costs.
From there, she lays out three ways government can help ease the pain Canadians are facing due to inflation.
First involves the Canadian Emergency Response benefit better know by the acronym CERB.
“Stop trying to claw back CERB from those who have no savings to pay people back, and are likely to be the most food insecure Canadians to begin with. In fact, perhaps it would be smart to increase until the end of 2022 the refundable GST credit, which might help our most inflation-challenged neighbours at least feed themselves in the coming difficult months. (Gentle reminder: a broad tax cut is inflationary!)”
The second involves wages and a path for temporary foreign workers to gain permanent residency.
“Average wage growth is currently at half the pace of price inflation, and you know that average wage growth is usually driven by those at the top. So why make things worse? In April, the federal government opened the floodgates on temporary foreign workers, to respond to businesses struggling to deal with labour shortages. Time to concurrently open the floodgates for people who wish to make the transition from temporary to permanent resident status in Canada (if they’re good enough to work here, why aren’t they good enough to stay here?). If the feds don’t move in that direction, and quickly, they have – by policy design – introduced a new wage suppression measure at a time when real wages are already losing ground at a pace not seen for four decades.”
The final suggestion is to establish more robust protections for consumers. Yalnizyan cites industries including telecommunications, retail food, fertilizer, meatpacking, ores, steel, banking and retail gasoline as ones with high degrees of corporate concentration and thus easier for them to increase prices on consumers while at the same time protecting or even increasing profits.
“We have a Competition Bureau that monitors the possible creation of market inefficiencies and price effects when mergers and acquisitions are proposed, but no consumer protection agency for what happens if the deal passes the sniff test. We had more vigorous consumer protection established by the federal government in the 1960s. The time has come to bring back a body that can dig into how prices are set (remember price collusion of bread by the grocery stores?) and take action if price-setting is revealed.”
All levels of government should be trying to help Canadians through these difficult times. However, our provincial government seems uninterested and unwilling to help. We need our federal MPs to step up and take Yalnizyan’s suggestions to ease the pain now and protect Canadian workers in the future.