Deflating Drummond

Statistics Canada reported today that consumer prices jumped in January (by 0.4% or 0.5% seasonally-adjusted), offsetting the drop in December. As a result, the annual inflation rate is now 2.5% and the Bank of Canada’s core inflation rate is 2.1%.

Monetary Policy

Both measures are well within the central bank’s target range, which should allow it to keep interest rates low and perhaps reduce them further if unemployment continues to rise. Since the last inflation report, the US Federal Reserve has pledged to keep its target rate near zero through 2014, providing a further argument for continued low interest rates in Canada.

An assumption underlying the Drummond Commission’s gloomy fiscal picture is that, starting in 2014, ten-year government bond rates will start rising faster than had previously been predicted by private-sector economists. Given the factors supporting low interest rates, this assumption is open to question.

Wages

Although inflation remains moderate, wages have been even weaker. Over the past year, Canada’s average hourly wage rose by 2%, lagging behind 2.5% inflation.

In Ontario, wages rose by only half the national average while inflation essentially equalled the national average. Over the past year, Ontario wages edged up just 1%, far behind 2.4% provincial inflation. Drummond-inspired austerity threatens to worsen this situation directly by limiting public-sector pay and indirectly by weakening the wider labour market.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

2 comments

  1. There is a hidden agenda behind the Drummond report and all your articles responding to the report support this notion. The plan is to change our values and to punish us for global warming. There is a lot of prosperity in this province which is proven by the steady flow of transport rucks along the QEW from 10a.m. until 3p.m. There is also a lot of pollution from those trucks. Burlington missed out being the top city to live in because of the oil refinery and the steel mills. Have you ever seen the smog over Toronto from 20 miles away? Build the transit and they will use it. The weary commuters who sit in the gridlock would be happy to leave their cars or only have to own one car if they could ride to work on fast trains that serve the GTA and outlying cities and especially the airport. How much pollution does the island airport create and who does it serve? What about noise pollution? Put a tax on that! Raise taxes on the corporations who enjoy the climate, culture, sports, entertainment, and education in the best place to live in the world. Reduce the fuel tax and lower electricity bills. Keep the social workers in the schools and the early education specialists. Lower post secondary tuition. Increase spending to healthcare and improve the nursing homes. Go to dinner in a nursing home one night. You’ll gag. We are not sinners. We have to get to work somehow. Get the trucks off the highways and use the railways. During a real recession there are no trucks on the QEW. Take the burden off the elderly, the people with jobs, students, and the sick.
    Let the seniors do their laundry during the day, let us take a ride in the country, and let us keep a little money to spend or save as we please. We are doing just fine and we don’t have to suffer because an unexamined report by an economic guru says so. We are not bad. We are suckers.

Join the Discussion

Your email address will not be published. Required fields are marked *

Before commenting, please read our Comment Policy