The Bank of Canada, along with most banks of the western world, have done all they can to get money into our economy. They’ve lowered interest rates pretty much as much as they can, but the banks aren’t loosening up credit, and there’s no indication of when that will happen.
Until it does (and I’m just doing some armchair economics here, drawing mostly on what I hear on BNN etc), I don’t see that we’re in for inflation. On the contrary, in desperate bids for business, I suppose deals and more deals will be offered to consumers = deflation.
But once things change, look out. With all the money injected, but not yet moving, in the economy, things could change fast, and drastically.
One implication is that anyone in collective bargaining should beware of wage increase freezes. While it may be the case that this year, and next, things are pretty desperate for businesses (ergo can’t pay employees much) it could be the case that people locked into increases that don’t factor in COLA find themselves in bad shape. Ie., once inflation strikes, your salary’s purchasing power diminishes, and fast. It will hurt.
Readers, what do you think? Am I off base here? And what are other implications for your average joe/ette that you can think of?
photo credit: Jurvetson