Canada’s Incoherent Rate Hikes

Outlets like the Breach and progressive economists were among the first to blame corporate profits and “greedflation” for playing an outsized role in inflation, the affordability crisis, and the immiseration of nearly everyone. As the Centre for Future Work found, corporate profits in a handful of sectors were the primary driver of inflation in Canada. In 2021, economist James Galbraith, writing of the US case, rejected the idea that interest rate hikes would solve inflation, pointing out that supply chain constraints, military spending, and energy costs — particularly that of oil — were driving prices up. By spring of this year, even the Wall Street Journal had to admit that corporations were increasing prices higher than their rising costs, driving up inflation. In short, workers and everyday consumers were bearing the brunt of the central bank’s anti-inflation strategy while rich folks and corporations made off like bandits.

Corporate profits, however, are not the only thing driving higher prices. With the latest interest rate hike in Canada, economist Armine Yalnizyan told the CBC that May’s unexpected inflation jump was driven first and foremost by mortgage rates. She emphasized the fact that it’s banks who set that cost. She added, “I don’t know why you need more pain because their rates are only making things worse for the housing market,” before nodding toward one of Canada’s most persistent crises: housing costs. “[T]hat’s where the biggest bite of everybody’s income goes, whether you own or rent or are rich or poor,” she said. That’s scary news in a country where household debt tops the G7, surpassing the country’s GDP.

Economist and director of the Centre for Future Work Jim Stanford echoed Yalnizyan’s point, concluding, “So the Bank of Canada is effectively saying: ‘Inflation got worse last month (because of higher interest rates), so we’re going to increase interest rates again.’” If that sounds like incoherent policy by the bank, that’s because it is. Indeed, it’s incoherent to the point of satire. As Stanford wrote on Twitter, “Pretty scary when life starts to imitate the Beaverton,” citing the satirical outlet’s June headline “To stop inflation making things more expensive, Bank of Canada [is] going to make different things more expensive.”

Interest Rates and Class Struggle

Left-wing economists will tell you that rising interest rates are designed to lower prices by way of recession and layoffs. It’s a form of class war, and the casualties are poor and middle-class people who have little to no control over the course of the economic affairs of states. These are the people who will struggle to pay their rent or mortgage, feed themselves, or enjoy a moderate amount of the decent things in the world.

Last November, Unifor president Lana Payne was among the first to say that Bank of Canada governor Tiff Macklem was fighting a class war against the working class. She called on the bank to halt its interest rate hikes. More recently, Stanford pointed out that Macklem is aiming for higher unemployment — and is starting to see his dream of more Canadians out of work come true.

Progressive economists will also tell you that central banks are fighting inflation today, in a new context and a new world, the way they did, for instance, in the 1970s and 1980s. The effort of these banks to control inflation is reminiscent of the Law of Instrument and the old line about hammers and nails — that is, when all you have is a hammer, every problem looks like a nail. For the bank, the nail is workers and consumers. The hammer is interest rates. And the swing of the instrument is class war. There’s no doubt who’s going to get whacked. Same as it ever was.

The tiniest ray of sunshine has broken through in recent days, however. In its statement upon hiking rates, the Bank of Canada mentioned corporate prices. As the bank continues to “assess the dynamics of core inflation and the outlook for CPI inflation,” it will “be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the inflation target.”

Saying the Truth Out Loud

The inclusion of a mention about corporate pricing in the bank’s statement is significant because it indicates that centrist elites are beginning to acknowledge the impact of free market raids on consumers. It’s not exactly a revolution, but it’s something. It points to an increasing recognition of the role corporate pricing, behind the fig leaf of “inflation,” has played in economic injustice and exploitation.

The struggle for economic justice begins with saying the truth out loud. For many, their livelihoods depend on not seeing what is directly in front of them. One’s interests and position in society — that is, one’s class — will condition how they see the world, what sort of information they seek, and how they process what they find. Part of the battle for a better world, then, is to shape the mainstream reality in such a way that recognizes basic facts that are inconvenient for the capitalist class. Those facts include, for instance, the empirically verifiable point that corporate profits and central bank interest rate hikes are sending housing costs up, crushing people and, you guessed it, driving inflation.

By emphasizing the ineffectiveness of interest rate hikes in accomplishing their purported objectives, and compelling policymakers to openly recognize this reality, we can make strides toward aligning policies with the urgent challenges we face and implementing changes that serve the interests of the working majority. To do anything less is equal parts craven and cruel.

The inclusion of a mention about corporate pricing in the bank’s statement is significant because it indicates that centrist elites are beginning to acknowledge the impact of free market raids on consumers. It’s not exactly a revolution, but it’s something. It points to an increasing recognition of the role corporate pricing, behind the fig leaf of “inflation,” has played in economic injustice and exploitation.

The struggle for economic justice begins with saying the truth out loud. For many, their livelihoods depend on not seeing what is directly in front of them. One’s interests and position in society — that is, one’s class — will condition how they see the world, what sort of information they seek, and how they process what they find. Part of the battle for a better world, then, is to shape the mainstream reality in such a way that recognizes basic facts that are inconvenient for the capitalist class. Those facts include, for instance, the empirically verifiable point that corporate profits and central bank interest rate hikes are sending housing costs up, crushing people and, you guessed it, driving inflation.

By emphasizing the ineffectiveness of interest rate hikes in accomplishing their purported objectives, and compelling policymakers to openly recognize this reality, we can make strides toward aligning policies with the urgent challenges we face and implementing changes that serve the interests of the working majority. To do anything less is equal parts craven and cruel.