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An updated inventory of long-haul inflation implications and angst

Many things are worrisome about substantial, sustained increases in the cost of living and borrowing.
Inflation and higher interest rates are back and staying put.

Sigh, argh, crying out loud: Inflation and higher interest rates are back and staying put.

For nearly a generation those two economic menaces were gone and staying so.

Central banks and governments were lead-footed in tweaking to inflation’s arrival, lead-headed in assessing its persistence and again lead-footed in imposing measures and offering solutions to patch over what had been substandard leadership. Those mistakes have cost all of us.

It ought to have been evident when the supply chain fractured at the outset of the coronavirus that it would cost more to bring products to market more slowly and meanderingly, and to provide services with the overhead of extra health and safety precautions and expenses for businesses and individuals.

And it ought to have been clear that this wasn’t temporary, any more than the pandemic was going to evaporate magically with vaccines. But here we are, in a full second year of galloping costs of living we have largely swallowed as some sort of cruel byproduct of COVID-19.

Many, many things are worrisome about substantial, sustained increases in the cost of living and borrowing – both their impacts and the reactions to them. Here are mine:

1. For a large cohort of the population, an environment of escalating prices and credit costs is unchartered terrain. While the old-timers among us are haunted with double-digit memories of mortgage and loan rates and enlarged grocery prices, if you are under 35 your adulthood has only experienced near-free money to borrow and low increases overall in living expenses. This cohort’s reaction will be pivotal in the wrestling match to bring the dragons to ground. All of us will need to understand the long tail of how rising rates course through the system and that the discomfort stands to prevail for another two years, but for a generation-plus that has not been confronted in the last decade-plus with economizing, that’s a tall order.

2. Changes in the leadership of the provincial NDP and the federal Conservatives may well prompt elections in the next six or so months. The governing federal Liberals believe their best chance to capture a majority is to confront Pierre Poilievre (the presumed Tory race winner as I write) with an election campaign. They feel they can define him darkly before he defines himself with the electorate. Justin Trudeau has told his cabinet he intends to run again. His pact with the federal NDP is wavering on social program spending, and he can claim that he needs to protect the country from what he will deem a Trumpian foe in the new Conservative chief. It is possible we will enter an election campaign in November, and with that will come more spending promises from the Liberals without more plans on how to pay for them. Similarly, presumptive provincial NDP leader David Eby is gradually repositioning his vision in place of John Horgan’s as he campaigns toward the premiership in December. In his case, it’s not a matter of his defining his BC Liberal opponent, Kevin Falcon, as his defining his own vision through a spring budget and campaign for the mandate that arises from his leadership bid and new term. We need to remember that our senior governments have unleashed spending and padded the ranks during the pandemic, either oblivious or malicious about the economic souring that was taking place in early 2020. Any further “investments,” as they euphemistically call them, will not diminish economic troubles, particularly if they resemble Horgan’s relief package last week that specifically penalized landlords. The province is crying out for a growth strategy – so, for that matter, is the country – as a companion to measure after measure by governments to spend our money on ourselves.

3. At a local level, government are experiencing cost increases no differently than anyone else, but their inabilities to run operational deficits steer them toward tax hikes and additional fees to paper over the additional expenses. With the municipal elections a month away, I’m not hearing anyone in the region talk about austerity and frugality to spare the property owner, the driver, the builder or anyone with whom it does business.

4. I worry about price gouging while expectations of inflation exist. Any sneakiness on the part of businesses will only delay the return of a sensible market.

5. While many would love housing prices to decline to bring homeownership within range, inflation and rising interest rates are one of the worst paths to get there, mainly because many of those same people will find their way into a market that seems inviting at the front end but is actually stinging as the mortgage bears down. Moreover, a cooler housing market is bad news for governments at all levels, but particularly the province, owing to their dependence on real estate construction and transactions as a steady stream of revenue.

6. Inflation and expectations about it naturally begat wage demands, and employers are not helped by the extraordinary labour shortages owing to our demography and our third year of missing immigration targets amid our sub-normal productivity as a country. The settlements in recent weeks of a handful of public sector contracts weren’t great benchmarks for the private sector, but it is obvious that several factors now are pushing many companies into compensation terms that, yes, will spur a new round of increases in the cost of their goods and services.

Believe me, sooner or later, I’d like to have happier news. 


Kirk LaPointe is publisher and editor-in-chief of BIV and vice-president, editorial, of Glacier Media.