Inflation

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Both the Federal and Provincial governments have delivered budgets. And both recognize that the current rate of inflation is high and causing economic problems, especially for those on the lower income levels.

Canada’s economic and financial networks were meant to operate at an inflation level of less than two percent per year increase. The actual rates for the last seven years are: 2017, 1.6%; 2018, 2.3%; 2019, 2.4%; 2020, 0.2%; 2021, 3.4%; 2022, 6.3%; 2023; 5.2%.

The problem with inflation is that wages and other incomes do not automatically increase with increased costs brought about by inflation. This means that people have less “discretionary” income. The effect is particularly troublesome for those with lower or fixed incomes. They will have increased difficulty in meeting basic needs such as food and shelter.

Many suggestions have been, and are being, made on how to deal with inflation. However, they all come under three general categories. The first is to do nothing. The second is to remove the cause of inflation. The third is to control the effects of inflation.

The first attempt is based on the idea of the business cycle – economic activities follow a cycle of inflation and stagnation. So, according to this theory, the period of inflation will come to a “natural” end. The major shortcoming of this theory is that the economic damage of inflation is not rectified when the cycle changes.

The adverse effects of inflation continue on after the inflation rate becomes more stable. This damage is particularly hard on lower income groups and is often permanent.

Attempts to remove the cause of inflation are often tried. When the Bank of Canada increases the bank rate, it is essentially following this method. Other methods proposed include removing or reducing carbon taxes and otherwise adjusting fiscal policies and practices. Again, the limitation of this method is that it tends to benefit the wealthy while doing very little to help those in lower income brackets. Further, its effects are negated by international events that do contribute to our nation’s inflation rate.

The third option of controlling the effects of inflation requires the adoption of policies aimed at specific economic sectors. It may include direct payments to persons in lower income brackets, greater support for made-in-Canada operations and limits of price increases, especially for shelter. This method may be of greatest worth to those in lower incomes, but it does require significant government intervention in the economy and possible adjustments to the financial position of the government.

The reality is that today’s economy is complex, integrated, and international. Solutions must be directed to specific problems and inflation has become a significant problem. Our governments must act to help those most directly affected by the increased cost-of-living. Too many people are suffering when the government can bring some measure of relief.