Unless unemployment rises, inflation will persist

Current Trudeau policies just don't cut it

Economists use the Non-accelerating inflation-rate of unemployment (NAIRU) estimates as a guide to future inflation. Unemployment higher than NAIRU leads to lower inflation, and unemployment lower than NAIRU to higher inflation. Despite a rapid rise in central bank rates driving up market interest rates by several hundred basis points since the Trudeau government was forced to admit that rates were not going to stay “lower for longer”, their mantra at one time, unemployment remains too low to make a downward difference to wage pressures.

Instead, Canada is in the classical dilemma often referred to as a wage-price spiral. Inflation is crippling household budgets and organized labor is rightly demanding higher wages to keep their members solvent. Running massive deficits while shovelling money to favorite programs like “climatre change” and EV battery projects to buy votes hasn’t seen much improvement in Liberal polling results but it has seen consumption remain strong despite higher housing and fuel costs, both directly a result of Trudeau’s toxic policies, and families are finding two incomes needed to make ends meet keeping unemployment levels below NAIRU. In parallel, unions are a bit more militant, understandably so. Real wages have stalled despite a rise in nominal wages and while the average real wage remains at 2021 levels there are (obviously) more than half wage earners who have experienced below average wage gain and are suffering a wage-cost squeeze on their household budgets.

With mortgage rates showing no signs of easing, house prices stubbornly high, and immigration continuing at a high level increasing demand for housing, there is little chance of much short-term relief in the housing market. Energy prices fell from their peak in 2022 but have now been rising for a few months and their impact on transportation is exacerbated by the useless Trudeau carbon tax. Food prices show no signs of coming down with year over year price rises averaging 7.8% in July 2023.

To curb inflation, interest rates need to rise to where people lose jobs and the unemployment rate rises above the NAIRU equilibrium point. That suggests a lot of pain in store for Canadians. In 2015 and ever since Canadians have been hornswoggled by a drama teacher who exudes faux empathy, vacations with his rich friends on the taxpayers dime, and preaches transparency while hiding corruption in his government and stalling or frustrating every ethics inquiry by deflecting it into “independent review” by his skiing buddy and long time family friend. Ignorant of economics, smug, self-absorbed and incapable of rational thought, our Prime Minister will keep inflicting damage on Canada until upended by the electorate.

That seems likely based on the most recent polls that show the Trudeau Liberals losing support pretty well everywhere.

It can’t happen too soon for me.