The World Forum - July 19th, 2024

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Inflation is coming: Signs that everything is about to get much more expensive

 


We have bad news for you, reader: Real estate is crazy expensive, your money isn’t going to do anything for you in a bank account, and now that $20 in your pocket may start hemorrhaging value just by virtue of existing. Below, a rundown of all the reasons that your loonies could soon be losing up to 5 cents of value every year.


Lumber prices are out of control: A 2×4 that cost $4 a year ago is now north of $15. Canada’s Food Price Report is seeing grocery prices rise faster than at any point since they started tracking them. Oh, and there’s that little issue of an absolutely untamed housing bubble reaching every corner of the Canadian map. Gasoline is also spiking up in value, but petroleum is always a bit of a wildcard, so best not to lump it in with other consumer spending.


In its purest form, inflation means that everything gets more expensive. The value of a dollar goes down, so you need more of them to buy a Big Mac (which is why a Big Mac cost $0.88 in 1978 and $5.69 in 2021). So it’s very reasonable to assume that if your dollar suddenly can’t buy you nearly as much as it used to, then it might have begun to devalue.


To be sure, the Consumer Price Index, Canada’s usual metric for inflation, isn’t showing that anything too weird is happening. The index, which regularly tracks the prices of a fixed list of goods and services, has always had its inaccuracies. Most notably, the index can’t account for changes in consumer behaviour, such as whether rising beef prices have driven Canadians to eat chicken – the index would just conclude they’re spending more on beef.


COVID-19 dropped a bomb on our usual understanding of consumer behaviour, spurring endless weird anomalies like a steep rise in alcohol sales, a boom in home baking and a run on sex toys, among others. If there was ever a time to be skeptical of the CPI’s forecasting powers, it’s probably now.


In the current financial year, Canada is running up a deficit that could have singularly paid for the country’s entire contribution to the Second World War. Running up a $55 billion deficit at the height of the Great Recession was considered extreme, and we just septupled that without blinking.


Yet, throughout the pandemic Canadians have been hoarding cash at utterly unprecedented rates. In November, a CIBC analysis found that Canadians were sitting on more than $90 billion in excess cash, which is not behaviour typical of a population in dire economic straits.


While COVID-19 was devastating to those in the tourism and hospitality sectors, it left other areas of the economy relatively unscathed. Regardless, a series of blunt relief measures showered cash on everyone.


Money is ultimately no different than plenty of other things in our economy: If there’s a lot of it around, it becomes less valuable. If the federal government sent every single Canadian a parrot they didn’t need, you can expect that the price of parrots (which currently stands at about $2,000 per bird) would plummet overnight. Similarly, when Ottawa is spraying its citizens with a firehose of unneeded cash, don’t be surprised if that cash starts to lose some of its purchasing power.


https://nationalpost.com/news/canada/inflation-is-coming-signs-that-everything-is-about-to-get-much-more-expensive

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