How is economic inflation affecting the prices of consumer products? What is its impact on Canadian citizens and industries? Read this piece to find out.
In economics, inflation is defined as a gradual or sharp increase in the price of goods and services in a given economy. When the general price level rises, each unit of currency buys fewer products and services; as a result, inflation equals a loss of money's purchasing power. Generally, economists consider high inflation rates bad for the economy since it contributes to a loss of consumer confidence and reduced economic productivity. When inflation rates rise to dangerous levels, we call it an economic recession. Recently, Canada’s inflation rate has reached an all-time high. The Central Bank of Canada reported that the national inflation rate was at a 30-year high of 4.8%, due to an overwhelming volume of government stimulus cash, supply chain disruptions and a surge in demand for consumer goods. The increased inflation rates are having detrimental impacts on the financial well-being of millions of Canadian middle-class and working-class families.
For a start, the high rates of inflation have dramatically driven up the cost of food, thus making it more and more difficult for Canadian families to afford groceries. On January 19 Statistics Canada reported that grocery prices increased by 5.7%, the biggest annual increase since 2011. Research shows that the prices of fruits and vegetables were affected the greatest; for example, it was found that the price of apples had increased by 6.7% in the past year, and oranges had increased by almost as much — 6.6%. Moreover, the prices of meats and other produce also skyrocketed; in fact, the price of frozen beef has gone up by almost 12% in the past year, while ham and bacon are up by about 15%. This significant increase in grocery prices has elevated the cost of living, which is very bad news for Canadian families who witnessed an increase in the unemployment rate during the pandemic from 7.5% to 8.1%.
Many economists predict the price of groceries to increase even further due to supply chain discrepancies caused by the new rules forbidding unvaccinated truckers from entering the country. The increase in food prices is an issue for the average consumer, but also for many small businesses that are in the food retail and manufacturing industry. These small businesses heavily rely on their suppliers for the shipping of food, since it is used for marketing or manufacturing purposes. The sharp rise in their supplies or food ingredients means that their operating costs will also increase, thus putting a strain on their financial situation and forcing them to lay off employees or increase their prices.
In addition to a sharp increase in the price of groceries, a sharp increase in the price of real estate and consumer goods is expected. The global supply chain disruptions that are causing the rise in inflation also mean that there is a shortage of supplies and minerals feeding the economy. Consequently, Canada is facing a severe shortage of semi-conductors and micro-chips which have to be shipped in from other countries; as a result, the price of consumer electronics and anything with computers in it (i.e. cars, planes, personal electronics etc.) have also increased by a large margin. That includes durable goods like washing machines and other household appliances, the price of which has gone up by 5.7% in the past 12 months. Automobiles also fit in this category, since they saw a 7.2% increase in price. These disruptions have made it difficult to import wood, stone, metals and other building materials that are essential for the development of real estate; as a result, house prices have also been impacted. Research conducted by the House of Commons Finance committee found that housing prices rose by a record 26.6% in December from the year prior, largely due to the supply chain discreteness that is indicative of high inflation rates. The increase in the price of real estate has had devastating impacts on Canadian Homeowners, whose mortgage rates have gone up to unsustainable levels; thus causing widespread bankruptcy throughout the nation. It also made it increasingly harder for younger people to purchase their first homes. And the increase in the price of day-to-day appliances and electronics has compounded this effect by making it progressively unaffordable to access basic amenities such as the internet and transportation.
All in all, the high inflation rates and the supply chain disruptions are bad news for the Canadian economy since it is increasing the cost of living and putting stress on families, industries and small businesses, causing bankruptcies and resulting in the loss of many jobs. Hopefully, the National Bank will make the necessary changes to monetary and fiscal policies to minimize the effects of this inflation crisis and avoid an economic recession.
By Harnidh Galsinh
Comments