Inflation: Causes, Consequences, and Cures

The surge in inflation in recent months has generated great concern and debate in Canada. This inflation is clearly the result of unique and often external factors related to the COVID pandemic and subsequent recovery: including disruptions in global supply chains (such as the chaos in superconductor markets), energy shocks (made worse by the war in Ukraine), and shifts in consumer demand away from services and towards goods products (due to restrictions on many service activities during the pandemic).

Despite the unique nature of this inflation, anti-inflation hawks are now dusting off their old policy recipes to restrain domestic demand and employment, and wrestle inflation back to the ground. The Bank of Canada has already increased interest rates twice (more and faster than any other G7 economy). Others (like Conservative leadership candidate Pierre Poilievre) call for cutbacks in government spending.

To be sure, workers are harmed by higher inflation, if wages do not keep up. But the labour movement must also be cautious about how austerity measures (including higher interest rates and government fiscal restraint) will negatively hurt employment and incomes. That kind of medicine is worse than the disease.

Centre for Future Work Economist and Director Jim Stanford addressed several of these issues in a recent webinar hosted by the Vancouver and New Westminster Labour Councils. He covered the causes of current inflation, the dangers of conventional responses, and elements of a more progressive approach to reigning in inflation. The webinar was recorded and is viewable here: