Opinion: The Bank of Canada needs to end its fixation on inflation - The Globe and Mail - "At the end of 2021, the federal government added the goal of “maximum sustainable employment” to the Bank of Canada’s mandate. But over the past year, the central bank has undermined the job prospects of working, precariously employed and unemployed Canadians by hiking borrowing costs at every scheduled interest-rate announcement since March, 2022... To be sure, inflation is a serious problem for Canadians. But higher interest rates are not the only or best solution. For example, they directly increase important components of inflation such as mortgage interest costs and rents that include mortgage costs. Higher rates also do not work on their own to tame inflation. Previous rounds of central-bank rate hikes dampened inflation in the mid-1970s, early 1980s and early 1990s only by also curtailing output and employment, leading to recessions. There’s a risk of the same thing happening this time around as well. Just last week, Statistics Canada identified interest-rate hikes over the past year as a cause of flat gross domestic product in the fourth quarter of 2022... in practice, rate hikes to constrain domestic demand during the 1990s were offset by expanding export demand at the time... While inflation targeting proved benign or even positive when the figure was below 2 per cent – lower interest rates tend to boost the economy – such targeting when inflation is above 2 per cent carries a stark trade-off between squeezing it down and expanding employment. The federal government wisely recognized this trade-off by adding employment to the central bank’s mandate in 2021. That moved the Bank of Canada a step closer to the U.S. Federal Reserve and the Reserve Banks of Australia and New Zealand, all of which have dual mandates to both control inflation and promote employment... Governments can protect the vulnerable from rising prices by ensuring that public pensions, social assistance and minimum wages are not only indexed to inflation annually but increase promptly with new price data. Policy makers should enable more workers to bargain collectively and negotiate pay increases that better reflect inflation or explicit cost-of-living adjustments. While advocates for such moves attract criticism for potentially exacerbating the situation, the truth is that the factors behind the current bout of inflation are not on the demand side – it is not workers making too much money that is driving up prices."
Canada's Higher Interest Rates Cause Borrowers Pain in Inflation Fight - Bloomberg - "Canadian consumers suddenly must come up with more money for their abruptly higher monthly payments, either by tightening their belts or liquidating assets. How they fare could offer clues to whether the rapid-fire interest rate hikes by central banks globally have further to go, or if they’ve already gone too far. Last March, with inflation unexpectedly roaring to a four-decade high, the Bank of Canada became one of the first major central banks off the mark in a global campaign of interest rate hikes enacted at near unprecedented speed. It raised its benchmark rate from the pandemic low of 0.25% all the way to 4.5% in less than 11 months. The Bank of Canada was also among the first to take a break from rate increases, signaling after January’s hike that a pause is warranted now that inflation seems to be easing. The US Federal Reserve and other central banks, meanwhile, say they’re still not done... Canadians for decades have been among the developed world’s most indebted people, and the low interest rates the central bank deployed to help the economy through the pandemic drove their borrowing to new heights. The country’s debt-to-income ratio reached a record 185% by the end of 2021, the highest in the Group of Seven countries. By comparison, the ratio is 101% in the US and 148% in the UK . Consumers are starting to show signs of stress. The latest insolvencies data shows a 33% jump in January filings from the year before. The share of indebted households behind on their interest payments also climbed to 2.07% in the quarter ending September 2022, the latest reading, from 1.86% in the 2021 quarter... That’s already starting to appear in sales of discretionary purchases like luxury cars and all-terrain vehicles. But a main source of stress, and of economic weakness, could turn out to be the housing market... Adjustable mortgages now account for about 30% of all outstanding home loans, according to calculations from National Bank of Canada. That leaves Canadians more vulnerable than homeowners in the US, where only about 5% of mortgages have floating rates... “There is a risk that this might be the straw that breaks the camel's back,” Stefane Marion, an economist with National Bank, said of the latest interest rate hike in January. “This increase will have some impact on the economy.” Already, there are early indications that some borrowers are in trouble... A Bloomberg survey of economists suggests Canada may already be near a recession."
Meme - "The Inflation Scare Doesn't Match Reality"
"Opinion: Republicans are scaremongering about inflation to derail the Democratic agenda"
"Why the inflation we're seeing now is a good thing"
"Should the government control the price of food and gas?"
Some used vehicles now cost more than when they were new - The Globe and Mail - "Welcome to the wacky world of U.S. car and truck sales, where the pandemic and a global shortage of computer chips have pushed prices to record levels... The lack of new vehicles and higher prices have sent more people into the used vehicle market, so demand is high there, too. Plus, rental car companies, normally a source of late-model used vehicles, are keeping their cars longer because they can’t get new ones"
From 2021
World food prices decline for 10th month running in January, says FAO
These are wholesale prices, but labour, energy, distribution and retail costs are still high
Opinion: We’ll never get back to low inflation, and we shouldn’t even try - The Globe and Mail - "The low prices of the past 30 years were effectively achieved on the backs of globalization and an increase of cheap labour. Now that both trends are reversing, we’ll never get back to the low inflation of the past no matter how hard we try. Headline inflation was always going to fall, since the factors causing it were temporary. The pandemic and its lockdowns snarled global supply chains, stopping shipping and closing factories, with the consequent shortages causing prices to spike. Once economies reopened, these disruptions were going to abate, with markets gradually finding their way back toward balance. That process is now well under way. As a result, inflation will steadily feel more bearable. But it probably won’t reach 2 per cent, the Bank of Canada’s target rate. When you dig into the inflation numbers, what you find is that core inflation, which strips out the most volatile elements, such as food and energy, is also falling. But it’s doing so much more slowly than the headline figure. Understanding why reveals an Achilles heel of economic theory. Like most economists, central banks put their faith in the neoclassical model of inflation. This focuses on money supply and how it affects demand... With such ostensibly scientific management of the economy, believe the monetarists, central banks can engineer endless stability, a conviction enshrined in Milton Friedman’s oft-quoted adage that “inflation is always and everywhere a monetary phenomenon.”... In a recent study with some colleagues, I plotted core inflation over the past 40 years against a measure of worker power based on the wage-profit ratio – the weaker the bargaining power of workers, the more managers can beat down wages and boost profits. What we found is an almost perfect overlap of the two. After about 1990, as workers’ power fell, wages went down and company profits went up, inflation trended steadily downward. This was, of course, the era of globalization... In the past decade, the downward-sloping curve of workers’ power bottomed out. Due to changing demographic and migration patterns, the growth in the world’s labour supply has apparently peaked. The pandemic has further exacerbated the resulting tightness, with labour markets fragmenting as China and India turn inward and supply chains are “deglobalized” in favour of such things as “friend-shoring” – limiting trade relationships to like-minded countries. Taken all together, these developments have limited the labour pool available to Western firms. That, in turn, has raised the bargaining power of workers. That’s why, despite slowing economies, employment is holding up and wages are still rising in most Western countries. Yes, they lag inflation. But because these trends look set to continue, there’s a good chance real wages will turn positive as early as next year. Low inflation was an easy win for central bankers in the days when workers couldn’t demand much. So when the Bank of Canada flooded the economy with money, instead of raising prices in supermarkets, it filled the pockets of asset holders, with house prices and corporate profits rocketing even though the economy was weak. But as workers start to seize a bigger share of the pie, either profits will fall – bringing stock markets down with them – or inflation will persist, as employers make up their rising labour costs. In practice, it will probably be a combination of the two. That means inflation will eventually settle at a level that, while manageable for most people, is nonetheless higher than the target rates of central banks. Trying to wrestle inflation all the way back down to 2 per cent would be wrong. Workers have borne the brunt of cheap prices for too long. More importantly, it would be futile. The changes occurring in world labour markets lie beyond the control of any central bank or government, and monetary policy can’t affect that. Instead, economists need to wrap their minds around the new economy taking shape and search for ways to exploit the opportunities it presents. There will be many."
Jobs, economy will suffer under eighth rate hike, economists warn | The Star - "Another rate hike from the Bank of Canada this week risks pushing the Canadian economy into a deep recession that could cost hundreds of thousands of people their jobs, a growing number of economists worry... That increase, said economist Jim Stanford, would be a grievous mistake for a simple reason: The economy still hasn’t felt the full impact of the seven rate hikes in 2022, and is already struggling. “I’m still convinced we’re likely facing a recession this year and it will be all the deeper if the Bank of Canada continues this single-minded crusade,” said Stanford, chief economist at the Centre for Future Work. “Even if they don’t raise rates, we’re going to see increasing slowdown from the rate increases that are already in the pipeline. So adding more would obviously make that even worse,” said Stanford. If there’s a mild “technical” recession — two straight quarters of shrinking GDP — there might not be many jobs lost. But a deeper recession could mean 300,000 people losing their jobs, and the unemployment rate hitting nine per cent, said Stanford... At National Bank Financial, economists Matthieu Arseneau and Taylor Schleich said the Bank of Canada has already hammered housing prices, and also caused a big dip in consumer confidence and business spending. “The most aggressive policy rate increase in a generation is taking its toll on the economy,” Arseneau and Schleich wrote in a research note. What might seem like a small additional hike could take an outsized toll given that the economy is already struggling, they added... Macklem has also expressed concern that the relatively low unemployment rate is pushing inflation. That means, said Stanford, that the Bank is actively pushing for people to lose their jobs"
When it's more important to look like you're doing something useful than to do something useful
Philip Cross: Higher profits are not driving inflation - "Over the past year when inflation took off, corporate profits rose a total of 7.5 per cent, less than the 10.6 increase in wages and salaries or the 15.8 per cent hike in indirect taxes"
The argument about companies being innovative ignores the factor that lack of competition leads to monopoly profits
Meme - Kate Hyde @KateHydeNY: "We passed the Free Soda For All Act!!!"
"Awesome! When do we get our free soda?"
"Free soda? The bill makes owning a dog illegal."
On the "inflation reduction act"
3 ways the Inflation Reduction Act would pay you to help fight climate change
Clearly this is about inflation (the page title is also different from the article title, tellingly)
Philip Cross: Welcome to our new economy of shortages, comrades - "Since the pandemic began, governments have focused almost exclusively on boosting aggregate demand — in the belief that understandably cautious spenders were the main threat to economic growth. But it is becoming increasingly clear that the pandemic’s more enduring impact is disruption of supply. The result is price increases exceeding forecasts and the prospect that persistent shortages will fuel inflation well beyond the three or four months that would qualify as transitory. As is often the case with crises, the pandemic has unleashed unexpected and unintended effects, bedeviling government planners everywhere. Few people foresaw shortages as a likely outcome. In summer 2020, the Bank of Canada predicted the “decline in supply is likely to be relatively short-lived” — even though shortages had been emerging in many regions and industries before the pandemic. With immigration plummeting as borders closed, it was predictable that COVID would trigger a drop in labour supply, yet policy-makers were fixated on propping up demand for fear slow growth would put downward pressure on prices. The most obvious manifestations of shortages are soaring prices for housing and commodities, notably oil and gas. Housing prices across Canada took off during the pandemic. But housing demand has outstripped housing supply since early 2015, when the Bank of Canada lowered interest rates, and the imbalance between the two has been slow to resolve itself, which is usually the case when governments interfere in the market’s normal adjustment to high prices. Government regulations, often at the local level, have prevented housing supply from rising quickly enough to dampen prices. As for oil and gas prices, firms are reluctant to invest after prices cratered in 2020, partly because some governments are blocking further development of fossil fuels. Compare these clogged markets with the market’s quick resolution of this spring’s spike in lumber prices. Pandemic shortages worsened when problems surfaced in the global supply chain... Shortages have spread this year to most sectors as many firms struggle to re-hire workers who either have left the labour force or moved to other jobs. The result is the unusual coexistence of both high rates of unemployment and job vacancies, a measure of the distortions introduced into our economy by the pandemic and government programs to support people... Shortages are de facto price increases. Higher prices, longer wait times, fewer product options and lower quality of service all represent an increased cost to consumers, yet only list prices are incorporated into the CPI... The Liberal government was quick to provide Statcan with funding to measure the pandemic’s unequal impact on various minorities in the Labour Force Survey, intentionally stoking woke feelings of victimhood. But money to improve the CPI, which affects everyone since the government’s entire tax-and-transfer system is indexed to it, was not forthcoming."
From 2021. Raising interest rates is such a great way of solving supply chain problems. But it's more important to be seen to be doing something useful than to do something useful
Meme - "High gas prices are not a big deal. Buy EV,or ride a bike"
"Why did greedy corporations double the price of oat milk?"
‘Does Biden Take Any Responsibility?’: Peter Doocy Grills Karine Jean-Pierre On Inflation - "After Jean-Pierre dodged the question again, Doocy tried a third time... Treasury Secretary Janet Yellen was forced to admit on Tuesday that she “got it wrong on inflation.” As inflation began to rise, the Biden White House claimed that it was transitory and was not something to worry about. Inflation hit 40-years highs this spring, which is absolutely something to “worry about.”"
"Trust the experts"
S'pore hawkers raising prices by 10%, 20%, 30% & more - "Many stalls in Singapore use cooking oil manufactured in Ukraine"
Inflation caused by corporate greed or not: a mystery - "corporate profits: They reached an all time high this year. Many companies saw profits hit record highs. This, naturally, raises some eyebrows. If companies are struggling with costs and supply chains so much, where are all of these billions in profits coming from? It begins to seem like all of this corporate crying about rising costs might be a case of crocodile tears, as companies jack up prices for all of us... Adding to the case against corporations is a lot of the consolidation we've seen in corporate America over the last 40 years. Case in point: There are four companies in the U.S. that control about 80% of the beef and poultry market. That kind of consolidation can mean companies don't have to compete as much for our business and there's less pressure to keep prices low. Meat companies have settled lawsuits over price-fixing just this year and a proposed merger between grocery giants Kroger and Albertsons has raised concerns that it will mean higher prices for many consumers... companies really have seen their costs rising. Prices of raw materials have been rising all year. They've been rising at about the same rate as the prices we've been paying in stores. Actually a bit more. Wholesale prices (the cost of the raw materials companies buy to make the stuff they sell to us) are up more than 8% over last year, compared with consumer prices, which are up 7.7% over last year. That is powerful evidence that a lot of the higher prices we are paying in the store are just the higher cost of raw materials being passed along by manufacturers and retailers. University of Michigan economist Justin Wolfers says corporate greed is a red herring and companies are not the source of inflation. "My friend and economist Jason Furman says, 'Blaming inflation on greed is like blaming a plane crash on gravity,'" says Wolfers. "It is technically correct, but it entirely misses the point." Wolfers says companies are always trying to charge as much as they possibly can. In fact, the only reason we're not all paying $800 for a pair of socks or a cheeseburger is simply due to greed in another form: competition. "That greed forces them to offer low prices because they're trying to muscle out their competitor."... most companies have two main expenses: raw materials and workers' wages. Raw materials have gotten a lot more expensive, as we saw. Wages, though, are another story. So far this year, wages have risen about 5% compared to prices, which have risen 7.7%. Companies are not raising wages as fast as they're raising prices. Wolfers thinks that lag is where some of these corporate profits are coming from... workers have more power now than they have in decades. Why aren't they negotiating for more?... For many workers, flexibility and other perks have been more valuable than money, so companies have been able to get away with offering lower wages, even at a moment when they are competing for workers. Still, Wolfers thinks wages lagging behind prices won't last for long. With prices rising at the same time unemployment is low and many companies competing to hire, workers are likely to push harder for higher pay. And companies will probably have to pay up to keep and attract talent. As soon as companies start paying out more in wages, those record profits CEOs are bragging about will likely go into workers' paychecks... consumers might be the guilty party in the inflation mystery. We've at least been aiding and abetting. "Inflation is coming from demand"... We're not necessarily buying more because we have more money, though. Our collective savings has been shrinking and household debt has been on the rise. It's possible we're spending money we don't have to keep up with rising prices."
Corporate profits have contributed disproportionately to inflation. How should policymakers respond? - "It is unlikely that either the extent of corporate greed or even the power of corporations generally has increased during the past two years. Instead, the already-excessive power of corporations has been channeled into raising prices rather than the more traditional form it has taken in recent decades: suppressing wages. That said, one effective way to prevent corporate power from being channeled into higher prices in the coming year would be a temporary excess profits tax.
The historically high profit margins in the economic recovery from the pandemic sit very uneasily with explanations of recent inflation based purely on macroeconomic overheating. Evidence from the past 40 years suggests strongly that profit margins should shrink and the share of corporate sector income going to labor compensation (or the labor share of income) should rise as unemployment falls and the economy heats up. The fact that the exact opposite pattern has happened so far in the recovery should cast much doubt on inflation expectations rooted simply in claims of macroeconomic overheating...
the rapid rise in profit margins and the decline in labor shares of income during the first six quarters of the current recovery is not that different from the rise in the first few years following the Great Recession and financial crisis of 2008... One reason to think the pandemic is the root cause of the recent inflationary surge is empirical. The inflationary shock has occurred in essentially all rich nations of the world—it’s very hard to find any country-specific policy that maps onto inflation. Another reason is to look where this inflation started: the rapid run-up of prices in the goods sector (particularly durable goods). The pandemic directly shifted demand out of services and into goods (people quit their gym memberships and bought Pelotons, for example) just as it also caused a collapse of supply chains in durable goods (with rolling port shutdowns around the world). In previous recoveries, domestic demand growth was slow and unemployment was high in the early phases of recovery... This time around, the pandemic drove demand through the roof in durable sectors and employment has rebounded rapidly, but the bottleneck in meeting this demand on the supply side was largely not labor. Instead, it was shipping capacity and other nonlabor shortages. Firms that did happen to have supply on hand as the pandemic-driven demand surge hit had enormous pricing power vis-à-vis their customers... price spikes in many sectors over the past year are not useful market signals about where the economy’s resources should be redirected; instead, they are just an extreme but short-lived mismatch between sectoral demands and supplies that will naturally unwind as the global economy normalizes after the pandemic... In short, the rise in inflation has not been driven by anything that looks like an overheating labor market—instead it has been driven by higher corporate profit margins and supply-chain bottlenecks. Policy efforts meant to cool off labor markets—like very rapid and sharp interest rate increases—are likely not necessary to restrain inflationary pressures in the medium term. Other tools that would be less damaging to typical families—like care investments to boost expected growth in labor supply or a temporary excess profits tax—could be effective in tamping down inflation over the next year and should be a bigger part of the policy mix."
Why corporations are reaping record profits with inflation on the rise - "Paul Solman: Smith, a liberal, mocks the idea that newfound greed explains the inflation surge with a tongue-in-cheek greed index chart.
Noah Smith: And I labeled the rises in inflation as rising greed and the drops in inflation as falling greed.
Paul Solman: Which would imply rising corporate generosity.
Noah Smith: The reason this is a joke is because the big drop in inflation in the '80s would have to be caused by surges in corporate altruism, the altruism of Gordon Gekko and the '80s people...
Robert Reich: Antitrust used to be a real thing. But since the early 1980s, antitrust has taken a backseat. In fact, some would say it's been thrown out of the car altogether. And big companies now routinely have the power to raise prices. Customers will note that there is almost an exact price matching among all major so-called competitors, because they're not really competing."
RNC Research on Twitter - "REPORTER: “230 economists wrote letters to Congress saying that [the Bidenflation Scam] would actually add to inflation. Penn Wharton’s Budget Model said the same thing.”
CHUCK SCHUMER: “They’re wrong.”"
Why U.S. Energy Stocks Are Gushing High Dividends - "Energy companies are facing the prospects of a long-term decline in demand for oil and gas, concerns about climate change, and the push to renewable energy. In response, they’re taking their profits and rather than using that money to drill new wells are sending cash back to investors. As a result, the energy sector’s dividends are growing faster than any other part of the U.S. equity market"
Damn greedy oil companies and their record profits causing inflation!
Netherlands to close up to 3,000 farms to comply with EU rules - "The Dutch government plans to buy and close down up to 3,000 farms near environmentally sensitive areas to comply with EU nature preservation rules. The Netherlands is attempting to cut down its nitrogen pollution and will push ahead with compulsory purchases if not enough farms take up the offer voluntarily... The Netherlands needs to reduce its emissions to comply with EU conservation rules and agriculture is responsible for almost half the nitrogen emitted in the proud farming nation... In 2019 a ruling by the Dutch Council of State meant every new activity that emits nitrogen, including farming and building, needs a permit. That has prevented the expansion of dairy, pig and poultry farms... an army of thousands of tractors took to the roads in protest and caused the worst rush hour in Dutch history with 700 miles of jams at its peak. Farmers fear that the plan to slash emissions by 2030 will cost them their livelihoods, oppose any compulsory purchases and argue farming is unfairly targeted while other sectors such as aviation are not... They are also looking at eventually taxing nitrogen emissions to encourage more sustainable practices"
Damn greedy companies driving up food prices!
Meme - Robert P. Murphy @BobMurphyEcon: "remember the next time you're filling up your car: evil rich people want gas prices to stay low, it's the progressive heroes of the underdog who want gas prices to be high"
sarah jeong @sarahjeong: "all the stuff you see about inflation in the news is driven by rich people flipping their shit because their parasitic assets aren't doing as well as they'd like and they're scared that unemployment benefits + stimmy checks + 15 minimum wage +..."
Note To Governors: Cutting Taxes Will Make Inflation Worse, Not Better - "Even as Republican governors blast President Biden and congressional Democrats for both causing inflation and failing to address it, they are promoting their own tax cuts that likely will add to consumer demand and raise prices... decrying federal fiscal policy for putting too much money in the hands of consumers while pushing aggressively for tax cuts is rank hypocrisy, even by today’s political standards... If there is a role for policy, it should be to increase the supply of goods such as gasoline. That really would drive prices down and slow inflation. Cutting taxes, by contrast, will boost demand for products already in short supply. And that is likely to only increase prices—exactly the opposite effect of what these pols claim to want."
Of course, a lot of the crowd who claim that free money is what caused the current round of inflation get very upset when you point out that cutting taxes, which is their favourite demand, will increase it even more.
Meme - Tea Pain @TeaPainUSA: "The price of gas has risen 26% in the past year, thanks to Trump's bumiblin' foreign policies and allegiance to Putin. Trumpers are unfazed, chalkin' it up as the "cost of bein' racists.""
Tea Pain @TeaPainUSA: "Presidents don't control gas prices, lout you know who does? The Republican-smoochin' Fossil Fuel industry."
Food inflation forcing some Canadians to overhaul Thanksgiving menus - "With less overall room in their budgets, any future increases to interest rates or the prices of everyday items could push individuals closer to insolvency"
Elizabeth Warren Says the Solution to High Gas Prices Is Higher Taxes on Oil Companies - "What she calls "gouging" is actually demand adjusting to supply. She also forgets that higher profit margins strongly incentivize entrepreneurs to supply more of a good to the market thus eventually driving down prices through competition. Leaving aside the fact that the senator has evidently never met a corporate tax she didn't want to hike, history shows that imposing a windfall profits tax on oil is particularly shortsighted. As part his administration's response to the Iran oil shock that tripled the price of petroleum in 1979, President Jimmy Carter championed the Crude Oil Windfall Profit Tax of 1980... the windfall profits tax (WPT) raised far less money than projected by the Carter administration while simultaneously reducing the amount of domestic oil that would have otherwise been supplied... The prospect of higher profit margins is already encouraging investment in domestic oil production."
When prices rise even further, this will be evidence of "corporate greed"
Meme - "Lockdowns!"
"Climate Crisis!"
"Refugees!"
"Why is everything so expensive?"
O’Rourke Says US Guest-Worker Program Would Help Slow Inflation - Bloomberg
Weird. We're told that it's a myth that immigration depresses wages
Meme - Robert Reich: "The Fed will keep interest rates low, no longer raising them to head off higher inflation. This means more money into the stock market. Big win for the richest 1 percent, who own half of it."
Robert Reich: "Understand this: Relying exclusively on the Fed to raise interest rates puts the burden of fighting inflation mostly on lower- wage workers. As the economy cools, working people will be first to be fired. Stop raising interest rates. Our target must be corporate profits."