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Slowing Economy Should Give Bank of Canada Pause … But It Won’t
New GDP data released last week confirm that higher interest rates and other headwinds have already slowed economic growth in Canada to a crawl. This should give the Bank of Canada pause to reconsider its schedule of aggressive interest rate hikes. That inflation was never attributable to overheated domestic economic conditions. Instead, statistical evidence indicates that current inflation is mostly the result of several unique post-pandemic factors: supply chain disruptions, higher energy prices, and a catch-up of consumer spending from depressed pandemic levels. Moreover, those largely temporary forces are already abating: several key global price indicators have fallen substantially in recent months (including petroleum, food, and shipping costs). By undercutting…
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Don’t Make Monetary Policy on Twitter
The Bank of Canada has been under attack from all sides for its actions (or, in some critics’ eyes, inaction) in response to rising inflation. To reinforce public support for its actions, the Bank has launched a communications offensive to explain – and justify – its actions. The Bank even posted a lengthy thread on Twitter arguing that since inflation hurts “all Canadians,” its efforts to bring inflation down through rapid interest rate hikes will benefit us all. This attempt to dumb-down monetary policy making was not just ineffective in its tone. It inadvertently revealed major flaws in the Bank’s economic reasoning. In this commentary, originally published in the Toronto…
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“We Need All Hands on Deck in this Labour Market”
Centre for Future Work Director Jim Stanford appeared on CBC’s News Network, with host Natasha Fatah, to discuss new employment data confirming a rapid slowdown in Canada’s labour market. He argued that a perverse consequence of aggressive interest rate hikes by the Bank of Canada has been a reduction in labour force participation: down 0.7 points since the tightening began in March, equivalent to the loss of 225,000 workers. “We need all hands on deck in this labour market”, he said, to address supply chain problems, the health care crisis, and other challenges. In this context, “throwing cold water over the whole economy” has a perverse, self-defeating impact on the…
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Higher Interest Rates Starting to Bite in Canada’s Labour Market
New labour force data from Statistics Canada confirm that Canada’s economy is already slowing down sharply as a result of aggressive interest rate increases begun by the Bank of Canada in March. With the U.S. economy (Canada’s largest trading partner) already in technical recession (with two consecutive quarters of real GDP contraction), and monthly GDP data showing no growth since May, this new report adds to worries that Canada’s economy is heading into recession as well. The labour force data confirm that the aggressive monetary tightening begun by the Bank of Canada in March is having a negative impact on employment and participation in Canada’s labour market. Employment fell in…
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Podcast: Rising Inflation Creates Tension in Collective Bargaining
With year-over-year inflation topping 8%, far in advance of nominal wage gains, workers in all parts of Canada’s economy are struggling to protect their real living standards. Real wages have declined by more than 3% in the last 12 months alone, with further erosion pegged in the months ahead. Collective bargaining tables in both the private and public sectors have been roiled by the acceleration in inflation. Workers are determined to try to keep up with inflation. And that determination is only heightened by the fact that corporate profits have increased so strongly alongside the rise in consumer prices. Some major strikes have already occurred (such as in Ontario’s construction…
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Snatching Defeat From the Jaws of Victory
The Bank of Canada has increased interest rates three times since March, with another (potentially large) increase predicted on July 13. Other central banks around the world are also quickly increasing interest rates to reduce domestic spending, slow down growth and job-creation, and try to reduce inflation back to their preferred targets (2% in Canada’s case). In this commentary (originally published in the Toronto Star), Centre for Future Work Director Jim Stanford considers the risks that this reflexive response to inflation will derail the strong economic recovery that has been experienced since the pandemic. A Pointless Sacrifice to a Mystical Two Per Cent God By Jim Stanford Canada’s economy rebounded…
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Wage Growth Picking Up, but Shows Important Differences Across Categories
There are some signs of a modest acceleration in nominal wage growth in Canada. This is not surprising, given both relatively tight labour markets and the impact of accelerating inflation on the wage demands of Canadian workers. Average hourly wages paid across the labour market grew 3.9% in the 12 months ending in May (latest data). That is an increase from year-over-year growth rates of 2.5% to 3% recorded in late 2021 and early in 2022. Wages are still growing at only about half the pace of consumer prices, which grew 7.7% (according to the Consumer Price Index) over the same period. Since wage growth is weaker than price inflation,…
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Taking Away the Punchbowl
Central banks in Canada and around the world have begun an aggressive cycle of monetary tightening: lifting interest rates quickly to undermine domestic employment and spending, in hopes of brining inflation back down toward their preferred targets (2% in Canada). Already, this shift in policy is having major impacts on forward-looking asset markets: stock markets, debt trading (especially for emerging economies), cryptocurrencies, and housing prices are all falling sharply. Many forecasters expect a worldwide recession to result from these measures. History suggests they are likely right: never before in Canada, and rarely anywhere else, have central banks succeeded in disinflating their economies to the extent now planned without experiencing a…
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Corporate Power and Post-Pandemic Inflation: A Deeper Dive
There is abundant research (including from the Centre for Future Work, here here and here) showing that corporate profit margins have expanded significantly in the course of the current acceleration of inflation. It is not solely a process of companies passing along higher input and labour costs to consumers through higher prices. Rather, corporations have used their market power and disruptions in normal supply channels to widen their profit margins. In Canada, after-tax corporate profits have increased to their highest share of GDP ever, coincident with the sharp rise in consumer prices. Since it’s corporations who literally set those prices, perhaps this shouldn’t be surprising. Labour costs, meanwhile, have lagged…
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New Video: Profits, not Wages, are the Driving Force Behind Inflation
What’s causing the current surge in inflation? And what should be done about it? In this new video, the latest in our “Debunkers’ Academy” series, Jim Stanford from the Centre for Future Work shows it’s not higher wages driving higher prices — in fact, wages are lagging far behind prices, and falling in real terms. The real culprit is corporations, who have taken advantage of the disruptions of the pandemic to jack up their prices (and their profits). This inflation is different than the 1970s, and it needs a different solution. Watch and learn! https://www.youtube.com/watch?v=8DgwM7nruQg