Maybe it's time for the Canadian government to now focus on what's actually causing inflation, instead of jacking up interest rates quarter over quarter. Maybe go after the grocery and gasoline retailers for their quite clearly collusive behaviour. Because putting my mortgage up another $1,000 a month isn't going to fix that.
this post was submitted on 27 Jun 2023
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The Canadian government does not control the bank of canada
True but the government can take legislative measures that would decrease inflation, and so it wouldn't be necessary to raise rates.
No but they are relying on it to solve our problems and clearly it is not working.
True, and the Bank of Canada is doing what it said it would do. It's just well beyond the ability of the BoC to solve inflation on it's own. The best it can do is raise rates until we end up in stagflation, which I believe we are dangerously close to.
I also have to admit that many of the underlying causes of inflation are out of Canada's control, this is without doubt an international problem. Having said that, there is a great deal Canada still can do to influence inflation and the cost of living.
As an example, wrt housing, raising the interest rate slows demand, by making it harder for people to afford house, but it also slows building by reducing access to capital to actually build more houses (hence stagflation). This is why the BoC and interest rates are insufficient. However, the Federal government could get back into the business of building public housing. That right there would go a long way to reducing the cost of living. Would it solve everything? No. But it would help one aspect.
You aren't wrong. The problem with making the economic decisions they make, is they are taking data for time already passed and making based decisions on how they think the economy will react in the future, knowing what they know. It's also an international problem for sure, really the core of it is that debts been too free for far too long, and then COVID hit, meaning all the major world economies had to print their way out of it, worrying about the consequences later. And I think that the data shows that was still the right decision at the time. But now we are in the dealing with the fallout stage, and I mean the major central banks have so far done fairly well. The problem is now, there's also been some rogue actors taking advantage of the situation, and reaping larger and larger profits, without recourse. If you look at the major telecoms (government protected), the major banks (government protected), the major airlines (largely government protected, and free to act without retribution due to the lack of government interest in doing so). The automakers (who are de facto government protected), the groceriers (government protected by way of no competition and a clear government aversion to act on what's pretty clearly collusion and anti-competitive behavior). Basically there's a common theme here, Canadian consumers are getting hosed. And that's also driving inflation, and its only the government that can interfere and regulate, the central bank has no jurisdiction here.
The bank of Canada cant impose anything on groceries and retailers either. It's going to take both parties to fight this fight.
Maybe itβs time for the Canadian government to now focus on whatβs actually causing inflation
Ron Howard voice: "They wouldn't"
Pretty much. Interest rates are a blunt tool. I'm worried we're drifting into stagflation.
Taking your example of housing, raising interest rates just makes it more expensive to own homes and to build homes. People have to live somewhere, and there isn't really any surplus housing. This makes it harder to downsize to reduce housing costs.
So much of what's driving inflation is outside of our control, but not necessarily beyond our influence.
I disagree with the assumption that there isn't any surplus housing, unless proven by a study. The only people I've seen actually pushing numbers on that have been ones with a vested interest in keeping housing prices high. My street is full of empty/for sale houses owned by speculators.
This is one of those cases where average inflation has decelerated, but consumers' experience of inflation remains unchanged - cost on stuff that the average consumer isn't using has gone back down, while cost on stuff we're buying remains inflated.
Lowering rates was the start of the housing market taking off though. And if you think you have it bad, imagine those rates but on twice the mortgage. RIP first time home buyers.
In some ways it will because now your disposable income will be reduced thereby crimping your ability to spend on consumer goods. You have to remember that the last time housing pricing went through the roof decades ago, BOC jacked up interest rates in order to bring prices back to earth and yes home owners who bought at the wrong time did suffer. These historically low interest rates are as much to blame for the housing price increases as the lack of new builds supply due to restrictive regulations and zoning policies. If we are to solve the affordability problem, housing prices will have to decline. Housing as the main wealth creation tool for the upper middle class of Canada and as a big driver of the economic growth has undesirable consequences that we are facing now.
I think treating housing as an investment, not a necessity has guided so many policy decisions over the decades leading to this. For sure, housing is only one component of inflation, but it is a component that is directly within the Federal governments ability to strongly influence.
I don't see how the overall rate could decline with grocery prices increasing 9.1%... our overall buying power is still that much lower. I thought I made decent money but not with what's going on out there now.
A median family only spends about 10% of their income on groceries in Canada, down around 7% in the US.
Because the other 90% goes to rent or mortgage, right?
cries in Vancouver accent
What is a 'median' family, though? We have 2 kids under 10 and let me tell you groceries ain't cheap.
Median family income (after tax) for 2021 was $68k. Highest was Alberta at $77k, the lowest NB with $60k.
I couldn't find median, but average household size is 2.9 people.
https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2023020-eng.htm
Grocery prices went up at an almost nine per cent pace. That's barely lower than the 9.1 per cent pace clocked in April, and still almost three times the inflation rate.
Food prices have been increasing at a faster pace than the official inflation rate for more than a year now.
Despite gasoline prices dropping enough to drop the overall inflation rate by a full percentage point? Surely transport costs must have gone down significantly. What ever could be going on, here?
Although a little outdated being from Nov 2022, Statistics Canada has a great breakdown of what contributes to the rising costs of food beyond transportation costs.
I'm not saying corporate profit-taking isn't affecting prices or that we shouldn't do anything about it, just that there's a lot going on here. Last time I looked Loblaw's profit margin had increased from 2% to 3% from 2020-2023. A 50% increase is a lot and I think they're scum for doing that, but it doesn't explain the overall ~30% increase in food prices.
Long read ahead.
Loblaws is FAR from alone in terms of being part of the cause. I work in food manufacturing for a very big company.
For at least two years in a row now, my company has held a large meeting to tell us that they are making record profits.
This company has its hand in a pretty large variety of products. If you live in Canada, the US, or Mexico, there is a very good chance that you have either eaten their products or purchased them. If you're from the UK, you've probably seen some of their products on shelves, too. For my job safety, I will not disclose which company, although it's probably not the one you're thinking of. They have a LOT of sub-brands, and I probably would have never made the connection between them if I didn't work with those products myself.
I agree that this goes beyond just Loblaws. Every rung on the ladder is trying to squeeze as much profit as possible. You have the ingredient manufacturers. You have the packaging manufacturers. You have the transportation companies. You have the food manufacturers. You have the retailers. Many manufacturing companies work with multiple suppliers. Every step adds more to the cost. Everyone wants their profits.
If companies throughout the chain decide to charge more, the cost can become compounded. My company sells to Loblaws. If my company charges new high prices, Loblaws' will use my companies new high prices as a base-line for their own profit goals. That 20% to 27% difference is likely from profiteering behind the scenes. Some of our products have nearly doubled in retail cost over the last 5 years.
I work at one company. I previously believed that it wasn't that big. I doubt that we are the only company to be like this within Canada.
Bank of Canada trying desperately to convince everyone that nothing is actually up?
Historically speakimg, it's rarely good when the general public panics over their money, even if it's reasonable. When everyone tries to withdraw everything, it's called a "bank run".
Banks use "stand-in" money to make/keep money. The know most people would want to keep some of their savings, so they temporarily use some of that money to lend out and to make their own money. That sounds rough, but with many thousands of people, it can work without anyone missing their money when they need it. Those loans are used for home ownership, opening businesses, and more.
If everyone believes the bank is running out of money, they will likely rush to withdraw theirs before it's too late. This can just multiply the problem, and a bank may end up shuttering for good.
I'm not saying that we are anywhere near that point, but people don't always need a guaranteed reason to panic.
I'm not going to get excited about any "deceleration"; this is still an increase. And due to "base effects",^1^ we're comparing against high values. Until it's steeply negative it's nothing to get excited about.
^1^ year over year measures compare now versus a year ago. if a year ago was unusually high, you'd expect this comparison to revert to the mean over time as the window shifts forward; it could have more to do with what you're comparing to (a year ago) than what's happening today
Bullshit they literally changed the formula
This. Also it's not like inflation "cooling" negates the price increase we have already had.
Changing the formula isn't a problem, it changes all the time (and SHOULD change all the time). In my opinion the problem is the choice of headline from CBC. Even the article acknowledges the headline inflation rate is being influenced downwards by volatile items, and that economists as well as the BoC don't really care what the headline rate is. All eyes are still on the underlying "warm" parts of more consistent categories.
I agree that the basket of goods should change, but it's also weird that they've been changing it every year that they've been worried about runaway inflation.
It normally changes every few years. Not every year for the last 3.
Basket of goods changes when the goods people are buying changes.
Basket of goods might have included lobster when lobster was a cheap source of protein, but it sure as hell isn't going to include lobster today.
To me it makes perfect sense that they are more granular during times when volatility is up and inflation is a concern. Otherwise everyone would be (rightfully) complaining that they are using outdated models when inflation needs to be gotten under control.
Besides, the new weighting is public. It didn't change all that much. I'm not going to run the numbers but the napkin math says 1) it wouldnt significantly change the headline rate and 2) it wouldnt change what we take away: it's artificially lowered by volatile items like gasoline, and underlying consistent categories are still too hot for the BoC. So while it's true that the headline rate is "bullshit", it's not because they changed the weighting.
Sooo... by slowdown they mean prices will stop rising, but what about lowering?
A deflationary environment is very bad generally because it incentivizes people to not spend money which slows down the economy and hurts everyone.
The healthier thing to do is for wages to rise. Wages are currently rising but slower than inflation (2.9% yoy as of january), and that should make you mad.
Did the price of bread go down after they were caught?
The expense and shame of being caught meant they had to increase it another 10%.
Which time?
I'm sure if we ask the corporations nicely, they'll lower their prices...
Is Tiff happy yet?
I'm not seeing lower gas prices where I am but I think they're already lower than most the country.
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