BRAUN: Inflation rises temporarily, labor shortage is of concern

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This just in: The sky may not be falling.

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As economists around the world wonder what will happen next with inflation, consumers can look forward to another year of food and fuel shock as demand soars and problems in the economy. supply chain continue.

And it seems prudent to anticipate that the central bank will raise rates soon enough in 2022.

Everything is a little brutal at the moment.

But as Bank of Canada Governor Tiff Macklem has repeatedly said, these recent inflationary pressures will ease.

Inflation is expected to drop back to around the 2% target by the end of next year; it will stay higher longer than expected, but not much longer.

Much of it is linked to the pandemic and therefore temporary.

This is not to downplay the situation. Inflation hit 4.7% in October, a record high since 2003, and most Canadians have felt the sting when cashing in at the grocery store. The numbers are expected to rise again and could reach 5% before the end of the year.

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Nonetheless, Macklem said in a recent statement: “The Bank of Canada is committed to ensuring that price increases do not become continuous inflation.

So yes, inflation will eventually go away, “but the alarmism does not go away,” said one connoisseur, who preferred not to be identified.

Joking aside, there is a dangerous element of self-fulfilling prophecy to inflation.

Henry Curr, economics editor of The Economist, pointed out that inflation is tied to people’s expectations, especially whether or not people think it is going to get out of hand.

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“If people don’t think inflation is going to happen, then most of it won’t,” he said.

How it works is the creation of a wage / price spiral, as the Financial Post recently explained, “by which workers begin to demand higher wages and suppliers begin to raise prices in anticipation of ever higher costs.

The media also play a role.

Douglas Porter, chief economist at BMO Financial Group, said in a recent statement that the current vogue in financial literature on inflation is to go back to “the old-fashioned 1970s”, the era of the last big inflation – and so on. is misleading.

Double-digit inflation – up to 14% in 1980 – and high unemployment characterize this period; Porter is quick to dispense with these comparisons.

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“The main point is that we are not predestined to follow the pattern of a previous episode, because each has its own foundations,” he said.

And yes, even if things will remain wild and woolly until 2022, moderation will be in order “by the second half of next year,” according to Porter.

Our anonymous financial joke explained some of the unique foundations of the 1970s, listing the oil crisis, Nixon dropping the gold standard and huge waves of baby boomers entering the workforce for the first time and using their discretionary income. .

Inflation is real, and it’s there, he said, but it’s not for the long term.

“Everything has a cycle. And there are a lot more checks and balances on fiscal policy than in the 1970s. ”

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So yes, the daily costs go up and it’s harder to make ends meet, but it’s not permanent.

If you want to worry about something, worry about labor shortages. The pandemic has changed a lot of their minds about what they do – or have done – for a living.

Wendy Edelberg, senior economics researcher at the Brookings Institution, says the big risk in all of this is that large increases in the demand for workers in the service sector will not be met by such large increases in the supply of services. workforce.

But that can be helped by policymakers, she said, who can encourage labor supply, “by continuing to bring the pandemic under control through vaccinations and sound health policies.”

And policymakers can also remove barriers that make work expensive, “such as lack of access to affordable, high-quality child care.”

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