Most of Canada to receive emergency alert test today
The federal government will test its capacity to issue emergency alerts today, with the exception of Ontario, where the test will take place on May 15.
With the cost of living jumping to a rate not seen in more than 30 years, Canadians have been paying more for essentials such as food, housing and gas.
The annual rate of inflation climbed to 5.7 per cent in February, Statistics Canada said Thursday, the highest level since August 1991 and the second-straight month it's been more than five per cent.
CTV National News' Manitoba Bureau Chief Jill Macyshon spoke with Phil Cyrenne, a professor of economics at the University of Winnipeg, about what's driving high inflation rates in Canada and who it's hurting most.
This interview has been edited for length and clarity.
Inflation is a continual increase in the average price levels. It's not a one-time increase.
You can have one-time increases in prices due to supply shocks. For example, suppose the price of oil goes up to 20 per cent. If that is the only increase in the price of oil, then prices will adjust. And so you wouldn't expect continuing increases in prices.
What you really need for inflation is to have what's called an expansionary monetary policy, plus an expansionary fiscal policy. What's happened in Canada is we've had basically all three: We've had expansionary fiscal policy, expansionary monetary policy and an adverse supply shock, particularly in energy. That's a recipe for inflation everywhere.
I think a lot of this is a legacy of the COVID period. I was someone who was very, very concerned about the period after COVID. I mean, we're not quite out of the woods yet. But you have to be careful what you're doing during the COVID period and what's going to happen after. Most economists thought the borrowing and the unprecedented financial spending and the lower interest rates were going to lead to problems after the COVID period. I think that's what we're seeing now.
In general, people on fixed incomes are always hurt by inflation. In other words, if you're retired and you're getting your annual CPP, that amount that you're getting is going to be purchasing less and less. Inflation really erodes purchasing power. But the people who benefit are people who are actually borrowing because, in a sense, they are going to be paying back with less valuable dollars, because inflation erodes that value. So borrowers actually do a little bit better under an inflationary environment, whereas savers generally do worse.
I think the Bank of Canada has realized that higher interest rates are needed. The idea behind higher interest rates is that it will reduce borrowing by consumers and businesses, which will reduce spending. It is the spending that is contributing to the rise in prices in conjunction with the supply shock. That (supply shock) is what's driving up energy prices, and energy prices filter through the entire economy. If you're talking about food prices, transportation is a key element of food prices. Lots of energy is used in agriculture. So energy is a key input in the economy, which is why it has such far reaching effects.
Right. For inflation, you need a continual increase in prices, and oil keeps going up. The only option that that central bankers have around the world is to basically reduce aggregate demand. And the way to do that is to raise interest rates -- in other words, to reduce the pressure that the world economy is putting on the oil market.
I think that's really what they're thinking about. The one issue that they're also worried about is that when you raise interest rates, you actually slow down the economy. So the Bank of Canada has this juggling act. It's trying to manage these inflationary pressures, but it doesn't want to push us into a recession. That's why they've been somewhat reluctant in raising interest rates.
The federal government will test its capacity to issue emergency alerts today, with the exception of Ontario, where the test will take place on May 15.
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