Inflation: Businesses profit, households pay

By raising interest rates to cause an economic slowdown, the Bank of Canada favors the financial professions and forces Canadian households to bear the financial burden in the fight against inflation.

• Also Read: Companies are struggling to keep up with Canadians’ expectations

Inflation hit 8.1% in June, the highest level in 30 years, as Canadian corporate profits rose more than 10% over the past year.

“The policy rate hike will not have a direct impact on rising oil prices or the desire of big companies for higher profits. The Bank of Canada’s current strategy not only fails to address the root causes of inflation, but is counterproductive if it causes the economy to slow down. Above all, it is the workers who bear the brunt of such a policy. Unemployment resulting from a decline in economic activity would be catastrophic for Canadian families,” warned Pierre-Antoine Harvey, associate researcher at the Institute for Socioeconomic Research and Information (IRIS) in a report published Thursday.

“The current inflation should be considered as an additional signal to accelerate the energy transition, fight against the unproductive concentration of wealth and reduce some regressive tariffs”, IRIS denounced in its document.

In fact, 54% of inflation is explained by the increase in transport costs. An average annual increase in gas prices of only 28% explains 44% of direct excess inflation.

Companies that have won from the crisis

“Unlike households where wages have stagnated, companies seem to have made the most of the context of inflation to raise their prices. This maneuver would have allowed them to make record profits while contributing to the acceleration of inflation,” said IRIS researcher Guillaume Hébert.

To protect purchasing power, the government can take several measures.

IRIS advocates raising wages to the level of inflation, arguing that this is the most effective measure to combat the problems caused by general increases in prices.

“Some fear that rising wages will contribute to a spiral setup, where inflation increases wage growth, leading to higher inflation for longer periods of time. However, the adjustment of wages to the cost of living does not have a permanent expansionary effect on inflation,” the report argues.

The creation of public sector jobs in the energy transition sector can reduce the population’s dependence on fossil fuels and thereby protect against rising oil prices.

Public sector jobs can be a safety net in times of inflationary crisis.

“Public service is not a burden, but a significant economic and social lever. Resources allocated to it must be considered as “revenue” and not as “cost”, IRIS asserts.

The institute also recommends that governments reduce tariffs and prices that regulate things like hydropower tariffs or the cost of childcare services.

Finally, IRIS suggests supporting municipalities so that they establish free public transport within their territory.

These aid measures may already be a game-changer for Canadian households, but steps must be taken to limit businesses’ ability to drive prices higher, such as monitoring sector concentration and fighting collusive practices on prices, the researcher assured. Guillaume Hebert.