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By Lana Payne
Tiff Macklem and the Bank of Canada doubled down on a failing strategy this week when they raised the interest rate for a seventh time this year.
He could have chosen to take a pause or even cut the rate increase in half in order to show he is taking heed of warnings from across the economy that the rate increases are too much, too fast. Instead, he raised the rate by 50 basis points to 4.25%.
Macklem’s stated goal is to “rebalance the labour market” in order to slow inflation. Translation: Too many people in Canada are working and those that are working are asking for wages that are too high.
At a time when 1 in 5 families are struggling to put food on the table and businesses are desperate to hire workers the Bank of Canada wants us to settle for less.
People feeding their families with paychecks from jobs that pay living wages does not cause inflation. Everyone knows that corporate profiteering, supply chain challenges and Russia’s war on Ukraine are the culprits here.
Those challenges will not be solved by raising the interest rate and throwing people out of work.
Inflation is on track to average 6.8% this year.
Average wages have grown at a slower pace, with wage growth set to average about 4.4% this year.
Shareholders and corporate executives are not paying the price for the inflation they are causing but they are reaping obscene benefits.
Profits from the oil and gas extraction and services sector were more than 1000% higher in 2022 than they were in 2019. Wood and paper products profits were 550% higher.
Grocery store profits were more than double. This is deplorable particularly coming from a sector that makes workers fight for every cent their wages reach above the minimum and is being investigated by the Competition Bureau for anti-competitive behavior - again.
Corporate profits as a share of GDP reached an all-time high earlier this year while workers were being told they were asking for too much. This response from the BoC is encouraging corporate greed and contributing to growing inequality while doing very little to address inflation.
The OECD recently found that when all central banks hike interest rates at the same time there is a larger, negative impact on GDP but a smaller impact on inflation. Unfortunately, the conventional response to this situation is for Central Banks to increase interest rates further causing even larger, negative impacts on GDP without the payoff.
Rather than developing a tailored response designed to slow profits, stop profiteering, fix supply chain bottlenecks and help workers keep up, policymakers have taken to blaming workers, demanding we keep wage expectations low.
What we need in response to this unique moment is governments and policymakers that implement worker-centred polices and take on corporate greed.
First, the Bank of Canada needs to rethink its strategy of raising rates and squashing workers while failing to call out profiteering.
Next, government needs to make sure EI is recession ready. If the Bank of Canada is intent on throwing people out of work to fight inflation, the federal government needs to respond by ensuring no worker is left behind when they lose their job because of outdated, wrong-headed monetary policy.
Third, the federal government should expand the excess profits tax to more industries and make it permanent.
Government must also invest heavily in public transit, electric vehicle infrastructure and clean power systems to get the economy ready for the future.
Finally, like they've done with child care, government should lower consumer costs on critical goods, including pharmacare and dental care. They should also consider introducing caps on profit margins in industries where price gouging and profiteering has become obvious or is a feature of the business model.
There are many solutions to Canada’s affordability crisis. Creating an unnecessary, job cutting recession, is not one of them. Indeed, a recession will make the current affordability crisis even worse.
