Inflation: businesses profit, households pay off

By raising interest rates to cause an economic slowdown, the Bank of Canada favors financial circles and makes Canadian households bear the economic burden of the fight against inflation.

• Read also: Companies are struggling to adapt to the expectations of Canadians

While inflation reached 8.1% in June, its highest level in 30 years, Canadian corporate profits have increased by more than 10% over the past year.

“The hike in the policy rate will not have a direct effect on soaring oil prices or on the appetite of large companies for high profits. Not only does the Bank of Canada’s current strategy fail to address the root causes of inflation, but it could be counterproductive if it causes the economy to slow down. Above all, it will be the workers who will bear the brunt of such an approach. The unemployment that would result from a decline in economic activity would be catastrophic for Canadian households,” warned Pierre-Antoine Harvey, associate researcher at the Institute for Socioeconomic Research and Information (IRIS) in a report published Thursday.

“Current inflation should rather be perceived as an additional signal of the need to accelerate the energy transition, to fight against the unproductive concentration of wealth and to revise downwards certain regressive tariffs”, denounced in its document the IRIS .

In fact, 54% of inflation is explained by the increase in transport costs. The average annual increase of 28% in gas prices alone explains 44% of direct excess inflation.

Companies winning from the crisis

“Unlike households, whose wages are stagnating, companies seem to have largely taken advantage of the context of inflation to raise their prices. This maneuver would have enabled them to reap record profits while contributing to the acceleration of inflation,” said Guillaume Hébert, researcher at IRIS.

To protect purchasing power, several measures could be adopted by the government.

The IRIS advocates an increase in wages to the level of inflation, assuring that this is the most effective measure to counter the problems caused by the general increase in prices.

“Some fear that rising wages will contribute to the installation of a spiral where inflation would feed wage increases which would in turn lead to high inflation over a longer period. However, the adjustment of salaries to the cost of living does not have a lasting amplifying effect on inflation,” the report argues.

The creation of public sector jobs in the field of energy transition would make it possible to reduce the population’s dependence on fossil fuels and thus protect it against soaring oil prices.

Public sector jobs could be a safety net in times of inflationary crisis.

“the public service is not a burden, but a considerable economic and social lever. The resources devoted to it must be considered as an “income” rather than an “expense””, insists the IRIS

The institute also recommends that governments reduce tariffs and prices that they control such as hydroelectricity tariffs or the cost of childcare services.

Finally, IRIS suggests supporting municipalities so that they establish free public transport on their territory.

These aid measures could already be a game-changer for Canadian households, but measures must be put in place to limit the ability of businesses to increase prices excessively, such as increased monitoring of sector concentration and the fight against consultation practices on prices, assures researcher Guillaume Hébert.

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