Politicians are flinging blame for rising inflation in every direction — and they’re all a little bit right

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This article was published 19/04/2022 (981 days ago), so information in it may no longer be current.

Yvonne Yuan went grocery shopping this week, and because she is a policy researcher looking at the cost of food for people below the poverty line, she had to stick closely to her list.

She saw prices that were 30 per cent higher than at the beginning of the pandemic. She saw smaller quantities in larger packaging. Milk, in particular, was a lot more expensive.

And all around her, she saw other shoppers checking prices, scrambling through their phones, stopping in their tracks with sticker shock, often walking on by without putting those items in their carts.

“People are paying way, way more,” says Yuan, who tracks prices for Open Policy Ontario.

She is stating the obvious.

Two years after governments in Canada and around the world flooded their citizens with hundreds of billions of dollars in income supports to get through the pandemic, consumers are once again in a desperately tight spot.

Inflation is at a 31-year high, and more expensive essentials — gasoline, food, fuel, shelter — are only the beginning. Rising prices are now pervasive, and while economists cautiously predict that inflation may be peaking right about now, the high costs will likely plateau and stick around for many more months. Everyone is feeling it, but low-income consumers are feeling it harder than most.

Food banks in Ottawa, Montreal, Vancouver and Saskatchewan are seeing a crush of new demand from hungry families, even as donations taper off.

This time, however, governments are not pushing aid out the door or preaching that they have everyone’s back. Instead, pandemic supports have ended, the Bank of Canada is raising its key interest rate repeatedly, and politicians are loudly pointing fingers at each other about who is to blame.

Economic policy that helped smooth out the pain of the pandemic recession is now coming back to bite us, and the solutions are unsavoury.

Wednesday started with U.S. President Joe Biden blaming Russian President Vladimir Putin for inflation, saying Russia’s invasion of Ukraine has driven up the cost of oil and gas. His solution? Biden is tapping into his country’s oil reserves and is asking Congress to drive down the price of prescription drugs and utilities.

In Canada, the Conservatives blamed Prime Minister Justin Trudeau’s “tax and spend” policies and co-operation with the NDP for rising prices. Their solution? “Real action” with hints of lowering taxes and cutting spending.

In Washington at G20 meetings, Finance Minister Chrystia Freeland blamed Russia for higher prices, and she walked out of a plenary session when Russia’s representatives started to speak.

And across the country, Trudeau and many of his ministers put on a full-court press to showcase how they plan to get housing prices under control, blaming not enough construction of new houses to meet a growing population.

In other words, blame is being flung all over the place, and solutions are, too — with most of them likely to be incremental or only effective over the long run, not of much help for the food-bank users or those flummoxed shoppers at the grocery store.

In fact, the blamers all have a grain of truth in their critiques.

Russia’s invasion of Ukraine has indeed choked off global supplies of grain and energy, sending commodity prices sky high. But inflation was intense before the invasion, driven higher by supply chain disruptions and labour shortages, which in turn were exacerbated by consumers with extra pandemic cash in hand and a hankering for things the world’s supply chains weren’t used to producing.

Policy-makers were central to that intricate web, in Canada and elsewhere.

Ottawa didn’t see inflation coming when it issued all that pandemic aid. The central bank didn’t see it coming when it cut rates to near zero and bought government bonds en masse to keep financial markets functioning smoothly.

Those were the right decisions to take at the time, when inflation was nowhere to be seen and COVID-19 meant a shutdown of many parts of the economy, throwing people out of work. In hindsight, while they could perhaps have withdrawn their support sooner as they saw labour markets recovering, there’s an open question about whether Canada alone could have tempered the inflation problem surging around the world right now.

What Ottawa can do is keep the food-bank users and the penny-pinching shoppers in mind, and not make it worse.

Social assistance and some federal income support programs are not indexed to rising prices. More broadly, wages are rising but haven’t nearly kept up with inflation, especially in the public sector. And the federal government has opened the doors to temporary foreign workers in low-wage sectors. All of those policies are in the hands of governments and could be changed to help low-income Canadians at least get by.

The central bank’s role is trickier. Inflation is being driven by a mix of supply and demand factors, but the Bank of Canada’s key anti-inflation hammer is to use interest rates to pound down demand. It’s committed to using that tool “forcefully” but with the very real risk of pounding too hard without solving the problem.

“It’s going to take a very steady hand at the tiller to guide us through this,” says economist Trevin Stratton with Deloitte Canada.

That goes for politicians, too.

Heather Scoffield is the Star’s Ottawa bureau chief and an economics columnist. Follow her on Twitter: @hscoffield