Inflation – The View From the Political Left

Brace yourselves – as should be evident by the title of this article, this is not a non-partisan take on inflation. Inflation, the issue top of mind for the majority of Canadians, has unsurprisingly become the focal point of political debate. From Pollievre’s claims of JustinFlation to Singh’s assertion of corporate greed, it’s difficult to overlook the profound impact the increasing cost of living – and the competing political narrative – has on everyday people. It’s here that progressives have an opportunity to change the inflation narrative.

Inflation – What Is It?

In it’s simplest form,  inflation occurs when the average prices of goods and services increases, usually measured through the Consumer Price Index (CPI). Inflationary pressures originate from the demand side, the supply side, or a mixture of both. Canada is currently facing a supply-side inflation, which is much more difficult for the Bank of Canada to control.  There are a whole host of contributory factors that impact the inflation rate, ranging from natural disasters and climate change to supply-chain issues and labour shortages. Throw a global pandemic into the mix, it’s little wonder that Canadians are feeling uncertain about their financial future.

Political Narratives

By now, nearly everyone will have heard of Pollivre’s JustinFlation. The driving force of this narrative is the belief that the current rates of inflation have been driven by the Liberal Party spending, particularly through COVID benefits, such as the CERB. Pollievre’s solution? What he refers to as common sense policy: “I would reverse JustinFlation with common sense policy, including: axing the carbon tax, phasing out inflationary deficits by ending wasteful spending and cancelling new promise and removing the gatekeepers to make more of what cash buys – energy, food and housing.”

Yet, despite these assertions, the former Bank of Canada governor, Stephen Poloz, refutes these claims, stating that government spending and stimulus are not to blame for increased inflation: "I think that's not right… In fact, what the stimulus did was to keep the economy from going into a deep hole in which we would have experienced persistent deflation…We have to accept the fact that policy [stimulus] response was in the right time, well intended and it did avert all the worst calls that people were making at that time.”

Liberals, on the other hand, have made the argument that the current rates of inflation are representative of a global phenomenon, largely driven by COVID and the war in Ukraine. They continue to point to long-term actions promised in their most recent budget, including affordable childcare and universal dental care.

Meanwhile, Canada’s NDP have been arguing against the narrative that workers are causing inflation and, instead, is pointing to corporate greed. Arguably, there’s some truth to this. During the pandemic, after-tax corporate profits hit a record 18.8% of GDP.

Notably, there is even some common ground between the left and the right with this issue; all sides agree that reducing ‘red tape’, facilitating trade, and keeping wages in check by clearing the immigration backlog would help with inflation. However, common ground is hardly the focal point here, to the detriment of us all.Despite the ongoing political commentary, two facts remain: not one of the three main parties have it right and, most importantly, the impact on Canadians continues to be overshadowed by political talking points.

Changing the Inflation Narrative

With all the political noise, it may be difficult to perceive where the opportunity lies for the progressives. Dominant political narrative tends to use the workforce and social programs as a convenient scapegoat, railing against unions, fair wage movements, programming, etc.; you can’t blame a person for being frustrated.

Yet, it is exactly here, amidst the noise, that opportunity exists.

Rather than trying to play the blame game, we need to start pushing our elected officials to start taking tangible actions to alleviate the dominant, supply side sources of inflation, to providing support for our vulnerable neighbours, and, ultimately, to re-evaluate the role of the Bank of Canada. Here’s what this could look like.

Addressing Supply Side Inflation

Here’s the crux of it all: supply-side inflation is much harder for the Bank of Canada to control. Rather than relying on this institution to save the day, Canada could be taking steps to alleviate backlogs at ports and customs to help ease some of the supply constraints we are seeing. We could be taking bold, transformational steps to start reducing the immigration backlog to help address labour shortages. And we could be taking action to address the high energy and fuel prices (that have risen 25.5% and 42%, respectively) that we are facing. In fact, when these influencers are removed from the CPI, the current inflation rate drops to 3.3%.

Providing Support for Vulnerable Canadians

High inflation is not experienced equally and the reality is, we will never live in a society where there aren’t vulnerable folks among us. I don’t like this reality any more than you do, but this fact alone means we must find ways to address the systemic issues that create these vulnerabilities in the first place. Sadly, that’s a discussion for another article.

Addressing systemic issues takes time – time that many don’t have right now. We need to start looking at targeted supports – supports that focus on families who are struggling to make ends meet. This means addressing income gaps. Gut-reaction may lead one to think a tax cut would be the best solution here, but I remind you of the urgency of this matter. Instead, we could look at doubling the GST, increasing child tax benefits, and increase investments in education and housing. The swift implementation of universal childcare, pharmacare, and dental care would make life more affordable for everyone. We could make it easier for unions to be formed and double down on the fight for fair wages. While some have tried to make the argument that increased wages have significantly impacted inflation, it’s important to note that Canada’s labor share of total income has declined from a high of 77.1% in 1972 to 65.5% in 2019, representing one of the largest declines among developed economies, outpacing even the States. Finally, government should be pushed to index income support programs to inflation. Certainly, this doesn’t encompass every possible opportunity, but it’s a solid start.

Re-evaluating the Role of the Bank of Canada

First things first – no, I am not talking about the abolishment of the Bank of Canada (BoC).

Now that that’s out of the way, it’s important to know that one of the primary roles of central banks is to keep inflation to a legislated percentage. In Canada, this is two percent. When inflation is high, the primary response from central banks is to raise interest rates, a response we have recently seen the BoC use. An odd response, considering the BoC admitted themselves that raising interest rates now will have next to no impact on Canada’s supply-side induced inflation. Clearly, this policy needs to be re-evaluated.

There exists right now a monumental opportunity to change the way we think about the role of the BoC. Right now, the BoC is focused on controlling inflation as defined by CPI, a remarkably narrow view. Instead, the BoC’s role should be broadened to address inflation beyond CPI, to include inflation of asset prices and employment and economic growth. Through this expansion, the BoC would have the opportunity to balance the competing needs of controlling inflation and maintaining economic and social priorities.

Conclusion

There’s obviously a lot more that could be said here – this merely scratches the surface.  However, while politicians continue to play the blame game, drowning out the conversation with political talking points, we’re missing the fact that Canada has experienced a remarkable post (?) - pandemic economic recovery, an achievement that should validate the sweeping measures that were taken to protect the lives and livelihoods of Canadians during the pandemic. Certainly, these measures shouldn’t be used as a political weapon, as they are so now.

It’s time for all of us, partisan, and nonpartisan alike, to start re-evaluating the way we think and speak about inflation. People’s lives and livelihoods literally depend on it.