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Orthodox Cure for Inflation Will Be Worse than the Disease
Evidence is growing that Canada’s economy, and most other OECD nations, is heading into recession. Dramatic increases in interest rates around the world, motivated by a desire to clamp down inflation that broke out after the COVID pandemic, is undermining investment, job creation, and household spending power. The Centre for Future Work has jointly released a major new report with the Canadian Labour Congress documenting the flaws in the Bank of Canada’s diagnosis of current inflation, and the risks in its one-sided approach to solving the problem. The report, titled A Cure Worse than the Disease? Toward a More Balanced Understanding of Inflation and What to Do About It, was…
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Podcast: Inflation, Recession, and Fairness
Centre for Future Work Director Jim Stanford recently joined renowned political analyst and opinion researcher David Herle, on his Herle Burly podcast, to discuss the rising risk of recession in Canada, why the Bank of Canada is raising interest rates so aggressively, and whether there is a fairer way to manage post-COVID inflationary pressures. Stanford warned of the dangers of applying 1970s-vintage inflation theories and remedies to the unique combination of supply disruptions, energy price shocks, and oligopolistic market power than explain the current upsurge in inflation. He also emphasized that governments have ample fiscal room (given rapidly shrinking deficits) to support jobs and economic activity in months if the…
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Appearing Before the Senate Committee On Banking, Commerce and the Economy
Centre for Future Work Economist and Director Jim Stanford was invited to appear as a witness before the Senate of Canada’s Standing Committee on Banking, Commerce and the Economy, to discuss the darkening outlook for Canada’s job market, and appropriate policy responses. The appearance lasted for one hour. Jim’s appearance was broadcast on CPAC. Here is a video link (Jim’s testimony starts at the 1:01:00 mark): Here are Jim’s speaking notes for his opening remarks: Speaking Notes for Dr. Jim Stanford, Economist and Director of the Centre for Future Work Madam Chair and Senators, thank you very much for the opportunity to appear before you today. I…
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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,…