Inflation: Politicians do nothing to help

Inflation: Politicians doing nothing to help

DAY

In an effort to provide a solid push to slow inflation, the Bank of Canada will likely raise its key interest rate another 0.75% today, bringing its rate to 3 .25%. This is 3 percentage points more than at the beginning of the year! 

She has no choice, it seems, if she wants to put an end to the damn vicious circle of inflation, which risks doing terrible damage to the Canadian economy. 

But one thing is certain, the current election campaign should not be counted on to put forward solutions aimed at curbing high inflation in Quebec.  

Quite the opposite is happening when most parties are not skimping on the electoral promise by committing to pour tens of billions into the Quebec economy. This will inevitably contribute to further fueling inflation!  

Massive race for promises

In the entire history of Quebec, never have we seen such a mad race for electoral promises. All the party leaders promise to enrich us, either with tax cuts, one-time cash payments to counter the rising cost of living, the abolition of the sales tax (QST) on a number of products, improving financial assistance for seniors or other financial assistance measures.  

It must be said that François Legault, the outgoing head of government, himself set the tone by unveiling new commitments even before the official launch of this campaign.  

At the end of the first week of the campaign, the leader of the caquistes had already made electoral promises for a value of 21 billion dollars. And to think that he still has four big weeks of campaigning to woo voters.  

As François Legault has a very strong chance of staying in power, it is clear that by injecting so much money in the Quebec economy, it will further stimulate inflation. In the short term, voters will like it. But if inflation persists and prices continue to rise, they will quickly become disillusioned.

Note that the leader of the Liberal Party of Quebec, Dominique Anglade, has exceeded the “generosity” of Legault, for the moment at least, with commitments to date of around thirty billion dollars. His economics right-hand man and Liberal campaign chairman, Carlos Leitao, has never been so fond of government spending as he is today. We are a long way from the time when, under his hat as Minister of Finance in the government of Philippe Couillard, he opted for extremely tight control of government spending. 

The leader of the Conservatives, Éric Duhaime, tried to stand out at the start of the election campaign by promising tax cuts in the order of $25 billion.  

After nine days of campaign, Gabriel Nadeau-Dubois and Paul St-Pierre-Plamondon proved to be less spendthrift than their rivals. For the moment. That hasn't stopped them from opting for multi-billion commitments.  

And there is no doubt that they too will feel the need to be more “generous” towards voters during the election campaign! 

The vicious circle of inflation 

How did we manage to create the period of acute inflation that we are currently going through? 

The hundreds of billions of dollars paid by Justin Trudeau's government as part of the fight against COVID-19, the ultra-easing of monetary policy with its key rate at 0.25% until the start of the year, low-interest household over-indebtedness and a strong economic recovery ignited inflation.  

And since the beginning of the year, we have been caught vicious of inflation. 

Who says inflation, says strong price increase. A loss of purchasing power ensued. We are trying to catch up with wage increases. Wage increases force companies to raise their prices. And it starts again, which says price increase, says inflation. Etc. Etc. 

This other increase in the Bank of Canada's key rate has the effect of “forcing” banking institutions to also raise their interest rates on the panoply of loans offered to individuals and businesses. 

By raising the cost of borrowing (through interest rate hikes), the Bank of Canada hopes that demand for goods and services will decline. &nbsp ;

And as a result, she hopes, this should curb inflationary pressures and the rising cost of living. 

By doing so, Bank of Canada Governor Tiff Macklem and the bonzes who around it want to slow economic growth.  

By raising the cost of borrowing (through interest rate hikes), the Bank of Canada hopes that demand for goods and services will decrease.  

Consequently, she hopes, this should curb inflationary pressures and the rise in the cost of living. 

Except, perhaps, in Quebec where we should have contented ourselves with helping people with low and middle incomes, and not all taxpayers. Moreover, it is the $100,000 and more who will benefit from the biggest tax cuts. Was it really necessary? NO. 

Inflation: Politicians doing nothing to help