Responsible for the economic pages of the To have to since 1992, Gérard Bérubé publishes this week Inflation. Causes and repercussions, a short popularization exercise on the current economic phenomenon. “Inflation”, a hated word that was thought to have been relegated in the early 1990s, and yet we are all paying the price today.
Just about every expert in the world was taken aback by the magnitude of the rise in the cost of living, yet all the ingredients were there. This is the main finding of the first part of this book of less than 150 pages. One still wonders how the central banks and almost all major specialists could have thought until last year that high inflation would be only a temporary phenomenon linked to the sudden recovery. With the pandemic, all the signals were red for the world to be plunged again into an inflationary period. On the one hand, the lockdowns forced entire swaths of the economy to shut down, leading to shortages. On the other hand, consumers were able to save during the pandemic, in addition to taking advantage of the many temporary government aids, which resulted in a marked increase in demand.
“It is true that most central banks and institutions have underestimated the effect of the pandemic on inflation. But it should not be forgotten that they could not have foreseen the war in Ukraine which followed. Besides Joe Biden, no one believed it, not even Zelensky. If the Russian invasion had not taken place, inflation would be much more controlled. We wouldn’t have returned to the 2% inflation target, but we wouldn’t be at 7 or 8% like we are now. It would rather be around 4 or 5%, ”says Gérard Bérubé in an interview with the To have to.
The economic journalist strives in this book to demystify the rise in the cost of living that we have been experiencing for several months now. He insists at length on raising interest rates, the Bank of Canada’s main tool for controlling inflation and returning to the 2% target. Gérard Bérubé also returns to certain key concepts, such as the consumer price index (CPI), according to which the inflation rate is calculated.
In short, this short essay offers a reminder of certain notions learned in economics lessons, for those who were lucky enough to have an economics course in their school curriculum. “People under 30 today have never heard of inflation. There is some misunderstanding, some confusion around this theme. There was a need for some clarification. That’s kind of the purpose of the book, ”explains Gérard Bérubé, who also cites the zero COVID policy in China as one of the causes of the shock suffered on the supply curve.
Reassuring
The situation in the Middle Kingdom and the war in Ukraine remain two great unknowns. Does this mean that the return to an inflation rate of 2% is postponed indefinitely? Gérard Bérubé is more of an optimist. He believes that the inflationary peak has been reached, and expects the rise in prices to gradually return to the Bank of Canada’s target by 2024 or 2025.
The economic journalist does not expect to experience an episode of stagflation in the short term, a disaster scenario where galloping inflation is combined with stagnation in economic activity. Nor does he foresee a long-term price-wage spiral, where inflation and large wage increases feed off each other.
“With interest rate controls, Canada is much better equipped to fight inflation than it was during the oil shock of the 1970s. You can’t get into a slippage like in Turkey [où l’inflation avoisine les 80 %] “, notes Gérard Bérubé.
To put into perspective the period, distressing for many, that we have been going through for a few months, the second part of the book lists a dozen articles published in The duty since 1992 in which the “i-word” is mentioned. The opportunity to see the range of measures put in place over the years to avoid soaring prices.
Gérard Bérubé also wants to be reassuring about a possible recession, almost inevitable according to him, with the interest rate increases to be expected in the coming months to control inflation. “To fight inflation, you have to raise interest rates. To stimulate economic growth, interest rates must be lowered. We have to find a balance,” he summarizes, taking great care to emphasize that a recession in the current context, with a shortage of labor and aging demographics, would not lead to unemployment of mass, as during the economic crisis of the early 1990s.
Inflation. Causes and repercussions is the first book published under an agreement between The duty and the Somme tout editions.