inflation

So about 15 years ago you could get gas in this country for like a a buck a litre.

Now, the last time I filled up my minivan it was over $120 and that thing does not hold 120 litres.

So, do the math, or don't, it's really depressing.

When the Bank of Canada tells me that raising the interest rate on my mortgage is going to somehow, eventually make things more affordable

like don't they realize that I'm paying like $8 for a tub of yogurt that I used to buy for $3

and now I also have to worry about my house payments going up?

We have a lot of yogurt in my house, like it's a ton, it's a ridiculous, obscene amount of yogurt.

The craziest thing when you hear politicians blaming each other or saying that we can solve inflation by doing this

or doing that they're not actually telling the truth, not exactly anyway.

Before I get into too much trouble for saying that let me just say to understand why politicians are so powerless to stop inflation

you have to understand why inflation happens.

Inflation is the rate at which price of goods and services change over a given period of time.

The thing that it took me a little while to understand is that inflation isn't just about rising prices

it's about the price of money itself.

OK so let's say you've got a lemonade stand and a big jug of lemonade that pours about five

glasses and hey, there just happens to be five kids with 10 cents each 10 cents a glass we call it a day.

But then one kid realizes hey, I can borrow even more money from my parents and they only

charge me one per cent interest or my parents are selling me an additional 10 cents per 10.1 cents

that's weird right, but it's true.

I promise there's a point here OK, I swear there is.

So this kid comes back to the lemonade stand with 20 cents, 10 of it borrowed and the little bugger buys two glasses of lemonade

the other kids in line are like hey wait a second if money is that cheap I'm gonna do the same thing.

So all the kids come with 20 cents, except now we've got a problem don't we because you've still just got the one jug of lemonade

There's a dollar of spending money out there 50 cents of product and you just ran out of stock.

So what do you do tomorrow? You increase the price.

20 cents a glass. Congratulations, that's inflation.

Is anyone else thirsty?

It's what happens when the price of things increases because people have more money than there are things to buy.

An extreme example, hyperinflation, is what happened in

Venezuela just a few years ago.

According to its Central Bank it calculated inflation at almost 54 million per cent across just a couple of years.

Can you imagine if a chicken at the grocery store cost $14 million? That's what Venezuela had.

But here's a brain teaser for you, who's to blame in a kind of situation this kind of situation where inflation gets so

out of control? Is it the grocery store are they the problem for continually raising prices?

Are consumers spending too recklessly?

Maybe it's the bank's fault for making money so cheap? Or is it something else?

A new set of measures is coming into force right now.

The very people who run our country would have you believe that they are pulling the strings, but those strings are more like lead weights.

Inflation, we know, tends to be sticky. Typically inflation takes about 18 to 24 months following rate increases from central banks.

It's actually what the Bank of Canada is trying to do right now raising interest rates to squeeze people into spending less

but even that's a bit like the Titanic trying to steer around the iceberg

even if you see it coming you might not get out of the way in time or if you do maybe you over steer you raise interest rates too much

and you just end up hitting something else like a recession.

You need to find the perfect balance between bringing inflation down to target at two percent without slowing the economy too much.

When the Liberal government talks about all the ways that they're tackling inflation by making

things like child care and dental more affordable that's only half true.

The Bank of Canada by law is independent from political influence.

Politicians can contribute to the overall macro conditions by not alarming Canadians about inflation.

They're alleviating the pain of inflation in a in a narrow way but inflation's still there.

I still have to buy the $14 million chicken because because I like chicken.

Conversely when the Conservatives talk about how government stimulus just makes inflation worse that's also only half true.

Yes, technically having more money than than goods in the economy is what got us into this problem in the first place right.

Just like with all those lemonade loans with the kids were taking out

and yes what a crazy world this would be if on the one hand you have the Bank of Canada trying to raise interest rates to rein in spending

while the government on the other hand was handing over money in big bags to encourage spending and avoid a recession.

But the actual truth?

There are many factors that affect inflation that are beyond our control of Canadians and Canadian government and the Bank of Canada.

Here's an example, the war overseas.

This is not something many economies or Canadians would have foreseen months ago but it's a major factor in affecting inflation right now

Russia and Ukraine are two of the top five exporters of wheat globally.

Together they deliver something like 60 million metric tons of wheat to the rest of the world every year.

but the war has had a catastrophic effect on that supply, driving up wheat prices everywhere

and just think about how climate change has affected crops right you think of things like drought

and all of the problems that different people have growing the food that we rely on every day.

Speaking of supply what about the pandemic we are still dealing with a global ripple effect

caused by the absolute mayhem of supply chains going to a heck in a hand basket.

Remember inflation is just too much money chasing too few goods driving up prices

And then there's the price of oil.

You don't need me to tell you how volatile that is. And if oil becomes more expensive then gas becomes more expensive.

And if gas is more expensive then everything is more expensive.

Because odds are that tub of yogurt that I still buy for $8 every week didn't get to the grocery store by bike

it got there by truck and maybe it got to the truck by boat or by plane I don't know.

I'm like getting all worked up over here.

So, volatile energy prices can throw everything out of whack the point to all of this being

how much of any of what I just mentioned does any Canadian politician actually have control over?

The government of Canada does not directly control inflation

but they influence inflation through their spending.

So here's the bottom line too much inflation sucks

And to be fair there are things that responsible governments can do to steer the economic ship as gracefully as possible.

They can reduce taxes, or they can raise them, especially on the wealthy, they could increase wages, make housing more affordable

try to unclog the supply chain, or you know, they could crack down on corporations.

We haven't even talked about how big companies set prices.

But ultimately getting inflation right is like keeping a dozen spinning plates in the air while riding a really sluggish unresponsive unicycle

with squeaky pedals, at night in the jungle and a tiger's chasing you and and 38 million people are telling you that you're doing it wrong.

Can we actually is there a way we can illustrate that that would be awesome if we I don't know I'm imagining the unicycle and it's great.

And here's the part that will really blow your mind.

At the end of the day inflation is all about consumer behaviour

how people spend money, which in turn affects how valuable money is.

Economists tend to argue that expectations of inflation what inflation will be in the next 12 months, 24 months in even longer

plays significant role in affecting inflation today.

Like if you think everything's only getting more expensive you will probably change your behaviour accordingly long before the Bank of Canada forces you to.

For a science that is as studied as it is imprecise the only certainty at the end of the day

is that we should all buckle up for an awfully long trip

and anyone who tells you that they can get from A to B quickly

Nah-uh.