All Inflation: It’s Not Just Gas and Food Anymore – and Wages Don’t Keep Up

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Everything seems to get more expensive. Food, gas and housing prices are on the rise, while paychecks are slow to keep pace. CBC News’ Priced Out series explains why you pay more at checkout and how Canadians cope with the high cost of everything.

Canadians used to how rising prices have undermined their purchasing power are now facing something worse than what they have experienced so far.

Rising prices at the pump are now a grim routine. We expect the effect of shipping delays on foods and things containing imported components. High housing costs are no more than a terrible reality in Canada.

But towards the end of 2021, this recognizable pattern of rising prices began to change. Until about three months ago, Canadians breaking down their weekly budgets would have noticed that most price increases were occurring in a few very distinct and relatively volatile categories, such as food, fuel and accommodation. Not anymore.

Inflation has become general

While economists disagree on why this is happening and exactly how the change will affect Canadians, everyone I spoke to agreed on one thing.

“The story is no longer about energy, about food, about housing,” said Tu Nguyen, a Toronto-based economist with consultancy RSM Canada. “It’s about everything in economics.”

It used to be that Canadians trying to stick to a budget could shop for cheaper products. They might avoid driving when gas is expensive, for example, or change their diet to reduce their intake of imported foods. But when inflation is general, it becomes more difficult.

It’s not just a few imported products that shoppers can avoid. Rising core inflation means prices are all rising together, making it harder to save as purchasing power declines. (Ivanoh Demers/Radio-Canada)

Some economists say this is a sign that inflation may have set in over the longer term and will start to hurt Canadians more.

Those at the bottom of the wage scale – including women, recent immigrants and precarious workers – are more deeply affected by widespread inflation. People with stagnant incomes and low bargaining power end up paying higher prices even for the cheapest goods and services they depend on.

New evidence that “all inflation” has jumped came in the same Statistics Canada report which showed prices were rising globally by 5.1% a year, the highest rate since 1991.

Go to the heart of the matter

But behind that number, people like Stephen Tapp, chief economist at the Canadian Chamber of Commerce, have drawn attention to the three ways Statistics Canada measures so-called “core” inflation: an attempt by statisticians to measure the underlying price movement by removing volatile goods.

The strategy, Tapp said, is to exclude prices that tend to rise temporarily, price rises “that might just relax and disappear” without being part of long-term inflation.

What is remarkable the graph displayed by Tapp, which is shown below, is that until November core inflation had not reached its target for years, hovering around 2%, while headline inflation – a figure with all the volatile goods always included – rose and fell. But suddenly all three basic metrics started to climb, with one of them as high as 4%, showing that the price of everything is on an upward trajectory.

“Those [core] The metrics are going to worry the Bank of Canada because what they’re trying to target are inflation expectations, and expectations have risen, Tapp said.

The core inflation measures that have hovered around the Bank of Canada’s 2% target for so long have started to surge, with two of the three measures above 3%. (Stephen Tapp/Canadian Chamber of Commerce)

Both Tapp and Nguyen explained that the rise in core inflation, after the removal of volatile goods, has two potential explanations. The first is that volatile price increases trickle down to the core, as everything is shipped or needs energy or contains imported components.

The other is that as inflation goes up everyone expects it to keep going up so companies plan price increases to keep up with expected inflation and workers try to make the same with their salaries.

Tom Velk, an economist at McGill University in Montreal, a self-proclaimed conservative and advocate of monetarist economics, insists there’s another reason why core inflation is rising: too much money is flooding the economy. If monetarism has gone out of fashion, especially among central bankers, he is not the only one to be of this opinion.

“When there’s a huge amount of money everywhere, all the prices go up,” Velk told me from his farm in Vermont, where he said locally produced eggs have soared to nearly C$8 a day. dozen. Velk insists there’s “too much money” – and until it’s absorbed by lower government spending and less central bank stimulus, core inflation won’t not disappear.

Salaries don’t keep up

But if there really is too much money, the problem is that not enough is going to the people doing the work, according to Kaylie Tiessen, an economist and policy analyst at Unifor, the largest private sector union. in Canada.

If Canadians are lagging behind, it is not strictly because prices are rising. The problem is that over the past year, as inflation topped 5%, incomes did not keep pace.

“And that means workers are losing purchasing power,” Tiessen said in a phone conversation last week.

LISTEN | How inflation creates even more inflation:

6:06How Inflation Creates Even More Inflation

We hear Alicia Planincic, an Alberta economist, talk about rising prices and what the central bank should do next. 6:06

Of course, not all employees are losers. Sobeys warehouse workers recently negotiated a four-year deal that included a 20% wage increase over the term of the contract. People who have studied the economics of rising wages and prices in the past say that one of the benefits of inflation is that it acts as an economic lubricant for the adjustment of wages and pricesallowing everyone to get a raise – although some workers and salespeople get more and others less depending on the demand in that sector.

Recently, Bank of England Governor Andrew Bailey – who critics say was earning hundreds of thousands of pounds a year – faced backlash when he warned British workers not to demand wages higher as inflation rose, for fear of worsening inflation. Tiessen means something similar when Canadian and American authorities warn of spiraling wages and prices.

In fact, she said that despite rising core inflation, there could be a danger in raising interest rates before workers have caught up.

“We certainly can’t put ourselves in a position where workers always lose,” she said. “We shouldn’t put ourselves in this position at all, as an economy.”

The wages of Canadian workers, many of them in public health, are not keeping up with inflation. (Chris Young/The Canadian Press)

Tiessen said a growing gap between the price of basic necessities and Canadians’ ability to afford them isn’t just bad for workers and their families. She said it hurts the whole economy when total purchasing power goes down. She is concerned that in the laudable effort to save the economy from the effects of the pandemic, the concept of inclusive economic growth, an area where Unifor has been a strong advocatewas forgotten.

A few months ago, when core inflation seemed stuck at 2%, it might have been reasonable for central bankers here and in the United States to be patient and let the economy run its course. . But now that the once stable measure of general inflation has started to rise sharply, it seems almost certain that the banks will try to contain it with higher interest rates.

But if the Bank of Canada and the US Federal Reserve begin to crack down on “all inflation” with higher interest rates while wages continue to fall, it will be up to elected officials to ensure that ordinary people who elect them are not the ultimate losers.

Follow Don on Twitter @don_pittis

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