Every few weeks, I’ll hear about it. The price of another grocery item went up. I don’t do enough shopping to know the difference, but my wife knows how much things cost... to the cent.
This inevitably leads to an argument about the consumer price index (CPI) and why it does or does not have any basis in reality. You know, the typical spousal dispute.
This little debate is new to us. For most of our lives, inflation hasn't been a major issue. While I'd read about other countries suffering from hyper-inflation, where a dollar today is only worth half of its worth tomorrow, we’ve had the benefit of rather stable economies, currencies, and cost of living.
That all changed in 2021, when Joe Biden and Justin Trudeau got together over coffee to see how they could hike prices. I joke, of course. Inevitably, governments take the blame when economies don’t do well, but it’s much bigger than any one government.
I’ve done some reading on this, so I’m a little more educated than I was a few months ago, although I still struggle to understand why prices keep rising and... how in the world do they calculate the CPI?!
Let’s try this by starting at the beginning... Inflation first took off when everyone, cooped up in their homes in 2020, all started ordering things from Amazon (aka China). At a time when industries were in disarray because of a new, deadly virus spreading across the globe, everyone wanted a Peloton bicycle for their home. They also wanted to renovate. Or, like us, they wanted to play video games. Since we couldn’t spend our work-from-home pay cheques on live entertainment or travel, we spent it all on goods.
This excess demand made shipping companies realize they had some leverage. The three major Chinese companies that own almost all shipping containers had previously operated at a loss to gain market share. Now they controlled everything. Everyone was vying for a limited number of shipping containers and so they upped the price. While the price of Canadian oil was dropping to below zero (still don't understand how this was possible), shipping companies were making a killing off of excess demand and their monopolistic power.
Then came the supply chain issues. All it took was one component of the supply chain to fail, like the production of computer chips, to hold up the entire assembly of products like cars and trucks. Corporations had become accustomed to “just in time” manufacturing, where last-minute orders were common to reduce the cost of warehouse space. For a long while, this worked. The world’s economy operated seamlessly, like a well-oiled machine. Until covid.
That’s when companies realized there was a risk to “lean” operations. Companies began to stock up on inventories, a movement from "just in time" manufacturing to "just in case." There has also been a movement in capital to countries that are closer to the U.S. like Mexico. This has all come at a cost, which has been passed on to consumers.
But there’s also a more sinister element at play, and that’s the role of corporations gouging consumers because they can. When the door opened to inflation – when it became “normal” to hike prices – many companies did not hesitate to firm up their bottom lines. Groceries are a case in point, where supermarket chains are so few they can essentially fix prices to the detriment of their suppliers and customers.
While higher fuel prices and labour costs explain some of it, they fail to fully explain the 30% increase in food costs. Much of it is pure profit. Annual food retail profits are more than double what they were prior to 2020. Food retailers in Canada profited almost $6 billion in 2022, a significant increase from $2.4 billion in 2019, a relatively strong economic year.
To keep up with higher costs, every worker is now demanding higher salaries, leading to, yes, even more inflation. My barber increased his fee by $5 a cut this year, my physiotherapist is increasing her rate by 15% in January, and many union workers (Canada Post workers included) are getting or waiting on much needed cost-of-living increases.
Inflation, at least according to the CPI (if you trust it!) appears to be calming down, but the damage is already done. Those scraping by on low-wage jobs have not seen their incomes increase by 30% (more like 3%) to cover the increases to food and shelter. It’s the working poor who are being left behind, and in elections across the world, are making their voices known.
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