Inflation: Blame the Bank of Canada, and Supply Managed Industries
The official figures are out, but you probably already felt it in your wallet.
The growth of the Consumer Price Index remained steady at 6.9% in October. Canadian families will get no respite. Prices of food purchased from stores—in other words, groceries—increased by 11% over the past year. For gasoline, we’re talking about a 17.8% increase.
If these massive hikes persist, and represent a break from recent decades, it’s largely due to the Bank of Canada’s laxity these past few years. For too long, its governor postponed raising the policy interest rate, claiming that inflation was transitory.
The Bank therefore facilitated low-cost borrowing, inflating the money supply to finance government deficits, and what had to happen happened: a general increase in price levels. Now we’re all paying for the Bank’s loose monetary policy.
The reason the Bank has to play catch up today by rapidly raising interest rates is that it was too slow to act in the recent past.
It must be noted, though, that certain industries are happy to profit from this situation to fill their pockets. Industries under supply management—including milk and egg production—did not miss the chance to raise their prices, even though these were already much higher than market prices.
Indeed, the most recent inflation data indicate that the price of dairy products rose 10.6% year over year—well above the general price increase of 6.9%. While the role played by supply managed goods in the current inflation is limited, their impact has nonetheless been felt by households for a long time, and certainly isn’t helping the situation.
So although most of the work to bring inflation back to more reasonable levels has to come from the central bank, our governments also have to avoid throwing gas on the fire by succumbing to the demands for price increases from protected industries, like those under supply management.