Byron Hackett is the Managing Editor of the Red Deer Advocate.

HACKETT: I didn’t know much about inflation, now I do and wish I didn’t

Canada’s inflation rate has rise to its highest point in three decades

Inflation seems bad, doesn’t it?

I ask that as a question because I am not an economist, I do not play the stocks or follow the global markets very closely.

And if you don’t like bad news, it’s probably best to look away now.

I had never really considered or heard much about inflation before this year. I assume it’s always just been a thing and the Bank of Canada or the Federal Government didn’t invent it out of the air, as another gut punch to Canadians as the COVID-19 pandemic seems to be finally in the rearview mirror.

How inflation works is a simple concept really if you’re a layman like me. Prices of commodities tend to go up, when the demand for goods and services is more than the economy supplies, according to the BOC.

When prices go up, money can’t buy as much as it used to. The most obvious place we are all seeing that, is at the gas pumps, where gas in Red Deer was sitting just under $2 per litre this week. A scary thought for most Albertans who got comfortable gassing up their vehicles for under a buck. There are other factors of course that play into the price of gas beyond inflation, like the global market for oil and the dreaded carbon tax.

At the grocery store, you may not notice it on individual items or with small purchases, but a week’s worth of groceries that might have cost between $100 to $150 last year now hits the wallet a lot harder.

That fits with the Consumer Price Index, which says food prices have risen about 9.7 per cent year over year. This is the largest increase since 1981. Cost of food at restaurants is up 6.6 per cent, so no relief there either.

Statistics Canada identifies the war in Ukraine and a record-low unemployment rate as key factors that have pushed up prices for food and commodities.

Home prices have gone up almost 50 per cent nationally in the past five years and even if that isn’t necessarily the case in Central Alberta, mortgage rates will likely rise as inflation does, meaning homeowners will have less purchasing power. Less purchasing power means consumers take on more debt to live a certain lifestyle and end up spending beyond their means or, they stop spending. Bad news either way.

“When inflation is high, consumers, businesses and investors are uncertain about what their costs will be from one day to the next. High inflation is often unstable and unpredictable, and that keeps the economy from performing at its best,” The BOC explains on its website.

“High inflation makes life especially hard for people whose incomes don’t keep pace with rising prices, such as pensioners and those with low pay. This is because high inflation decreases the value of their incomes and savings.”

The BOC typically targets a two per cent inflation rate. As of May, Canada’s inflation rate rose to 6.8 per cent, the highest it has been in over three decades.

To make matters worse, wages across the board are relatively stagnant, in no way keeping up with the high rate of inflation or life, in general, these days. A real disaster.

As inflation pushes higher, the BOC tried to curb that by raising its interest rate to 1.5 per cent, in order to encourage borrowing and investing to stimulate a sluggish economy.

With cost of living at its highest rate in the past 30 years, the signs that things won’t improve in the near future are pretty clear.

That should be scary for all of us, who were just hoping to get on living a normal live in the wake of the COVID-19 pandemic. Vacations, BBQs with friends and family, concerts, festivals and sporting events, all of it is going to cost more this summer and into the fall.

It is discouraging and sad and disappointing and worrisome. We’ve all been working so hard to get ahead and with this discouraging news, it doesn’t seem like that will be a reality.

“With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further,” The BOC wrote on June 1.

“The policy interest rate remains the Bank’s primary monetary policy instrument, with quantitative tightening acting as a complementary tool.

Economists tend to disagree on this final point, because of course they do. Some say that the Federal Government has tools within their power to control inflation. Others, predictable say world events, including the COVID-19 pandemic, the war in Ukraine and the labour shortage are having an impact beyond what anyone can fix in Canada.

Some say the government could easily provide a break or rebate on gas prices. They could do the same with food but it doesn’t seem like help is on the way any time soon.

A potential light in the darkness (or more worrisome point, depending on your perspective) here could be that Bank of Canada deputy governor Paul Beaudy said they would essentially engineer a recession to get back to the inflation target of two per cent.

“Our mandate is clear. It’s the inflation target. We have to do what’s necessary to get there. We’ll do what’s necessary,” he said.

“At the same time, we’ll do what’s best for Canadians but the bottom line is we will get inflation back to two per cent and we will do what is necessary to get it there.”

July 13 will be the next date to mark on the Calender, as the BOC plans to release its next full outlook for the economy and inflation.

Byron Hackett is the Red Deer Advocate Managing Editor.