Vaccines, not politics, are the antidote to inflation

There should have been a memo earlier this year that restarting the $107-trillion global economy was going to be a bumpy ride.

Nothing like the immensity of that project has ever been done before, after all.

Instead, economists and decisionmakers in business took the high rate of COVID-19 vaccinations, especially in Canada, to mean that a return to normal would be soon and straightforward.

Yet, Canadians are now coping with a spike in inflation they weren’t warned of.

And there is a multitude of shortages, notably in labour; in the computer chips that run our Information Age; of the vehicles that run on those chips; and of the shipping containers by which the largest portion of the world’s cargo is transported.

All those factors are driving price inflation.

And Statistics Canada’s August report that GDP actually dropped 1.1 per cent in the second quarter suggested that Canada’s economic recovery has ground to a halt.

COVID-19 has come roaring back, of course. The fourth wave, fuelled by the ultra-contagious Delta variant, has slowed economic recovery to a crawl in many parts of Europe, India, China and major economic regions of North America, including Alberta and Florida.

That in turn has forced a reversal in recent weeks in the back-to-the-office

regimens that major employers planned in the spring. That is yet another blow to the small businesses that serve financial districts and suburban office campuses.

In the spring, restaurant chains, resorts, airlines, concert producers and other industries especially hard hit by the pandemic-induced recession were gearing up for a resumption of business.

But the continued high levels of infection across Canada have once again impaired that huge employment sector of hospitality, tourism and live entertainment.

Finally, the frequent reports of infected schoolchildren and school closures soon after the schools reopened this month is a worry, especially for working parents. Their employers cannot afford losing those workers.

So, perhaps a reminder of the good news is in order.

Canadian GDP growth of about six per cent is still expected this year. That’s more than twice the rate in the last prepandemic year, 2019.

Above-average economic growth is expected in 2022, as well.

Job growth was strong in August, at 90,000 new positions, more than two-thirds of them higher-paying full-time jobs.

The jobless rate has fallen to 7.1 per cent, the lowest since the pandemic began, and just 0.8 per cent below the prepandemic level.

The Bank of Canada is determined to keep borrowing costs at rock-bottom levels into the second half of 2022, despite pressure to raise interest rates to bring down inflation.

Profits, or earnings per share, of companies listed on the Toronto Stock Exchange posted a 111 per cent gain in the second quarter over the yearearlier period.

Global corporations are hoarding some $8.6 trillion in cash, about 45 per cent higher than the average over the past five years.

That’s money poised for long-delayed business expansion when the pandemic clouds clear.

And cash hoarding by Canadian households is set ignite a boom in consumer spending. Savings held by Canadian households stands at $270 billion, a staggering sum equal to about 10 per cent of GDP.

“We continue to believe that this wall of wealth will ultimately boost spending when (pandemic) restrictions recede,” Doug Porter, chief economist at BMO Capital Markets, wrote in a Sept. 7 client note.

It wasn’t until last month that Jerome Powell, chair of the U.S. Federal Reserve Board, warned that the latest surge in COVID-19 infection rates is a “wild card” in forecasting the speed and strength of economic recovery worldwide.

That is a well-founded, if belated, warning.

But David McKay, CEO of the Royal Bank of Canada, the country’s largest lender, thinks that by now the Delta variant has been built into readjusted business expansion plans.

“(I’m) still very positive about the continued progress on reopening the economy through the next 12 to 24 months,” McKay said in a late August earnings call.

Inflation is the biggest worry of Canadians, so let’s address that.

Abnormally high inflation rates in Canada, currently running at an 18-year high, will continue to keep living costs above normal until the spring.

The consensus among economists, including those at the Bank of Canada, is that the current high inflation rates are temporary (or “transient,” as they like to say), and will ease next spring.

Generally speaking, prices are simply returning to their prepandemic level.

Because such trends tend to overshoot, pump prices, for instance, are 20 per cent to 30 per cent higher than the 2019 level.

But they will ease once the pent-up demand for consumer goods does, after accumulating for 18 months.

You can fight inflation by limiting your purchases. It is soaring demand that is causing the inflation. That demand is driving up prices for limited supply.

The supply is constrained by overwhelmed factories and transportation systems worldwide that are struggling to handle two and three times the volume they were designed for.

And while you are paying more for butter and coffee, the abnormal upward spiral in housing costs, including rent, accounts for a great deal of the reported inflation rate.

On the campaign trail in the current election, inflation has eclipsed climate crisis, daycare and Indigenous reconciliation as the most pressing issue. It has been rebranded as an “affordability crisis” and the party leaders all vow to tame it. But they can’t. Current high inflation, which again is expected to be temporary, traces to unusually high levels of demand and resulting supply-chain disruptions in faraway lands over which Canadian politicians have no control.

The most that party leaders can offer in the few days ahead of this Monday’s vote is to commit to inflation-relief cheques for Canadians.

The cheques would follow on Ottawa’s success with pandemic household income supports. And they could be financed from surtaxes on business sectors that reaped aboveaverage profits in the pandemic.

Unless you hear that proposal in the next few days, assume that whoever forms a government will effectively do nothing about inflation. Because they can’t.

You can also fight inflation by getting vaccinated against COVID-19.

COVID-19 outbreaks are driving up prices by disrupting supply chains when essential workers fall sick.

Canada has an abundance of vaccine doses. They are free, safe and effective.

They are your ticket to freedom.

And more than anything else they will put an end to this long season of disruption and deprivation.

Be well, keep safe.

Inflation has been rebranded as an “affordability crisis” and party leaders all vow to tame it. But they can’t