According to just released U.S. Labor Department data, the consumer price index (CPI) increased 6.2 percent from October 2020. The CPI in Canada was not far behind, rising almost 4.5 percent on a year-over-year basis in September, the fastest pace since February 2003. In general, monetary authorities like to keep the annual inflation rate at somewhere between 2 to 3 percent. What one is seeing now could certainly be described as ‘hyperinflation’, which causes all kinds of major issues for governments. Experts also predict that this current belt of inflation is not going to go away any time soon because of a number of underlying factors, many attributed to economic consequences related to the pandemic.
You don’t have to be an economist or a political scientist to figure out the daily concerns caused by the current inflation rates throughout both economies. The average American or Canadian sees these concerns on a daily basis when they purchase a house or pay rent, go shopping for food, put gas in their vehicles, buy new vehicles, pay their electricity and heating bills, etc., etc.
While wage rates have been climbing in recent months, higher consumer prices are eroding peoples’ buying power. In the U.S., inflation-adjusted average hourly earnings fell 1.2 percent in October from a year earlier. The longer high inflation continues, the more pressure will be put on Federal Reserve and Bank of Canada officials to end near-zero interest rates sooner than expected. With the increase in interest rates, people with mortgages and outstanding debt will be faced with the greater cost of borrowing and additional debt-related issues.
One must remember that when George H.W. Bush was president, one of the major reasons that he was unable to win a second term in 1992 was because of the early 1990s economic recession during his administration. Some suggest that he forgot about the most important political maxim that: “It’s all about the economy stupid!” The impacts of the recession also included the resignation of then Canadian Prime Minister Brian Mulroney. Administrations cannot ignore a situation of hyperinflation for very long. Both President Biden and Prime Minister Trudeau are caught in between a hard place and a rock. With the end to financial assistance related to the pandemic and the economy’s lockdown, people are going to suffer. Tough choices are going to have to be made, whether to put nutritional food on the table or cut back on medications and basic entertainment.
Yes, the economy does appear to be opening up. However, new COVID cases are on the rise once again in certain regions in North America. Indeed, in these regions one has what is being referred to as “a pandemic of the unvaccinated.” Consequently, should governments choose to renew or introduce new financial assistance measures, this will only exacerbate the current economic situation by further increasing the ratio of government debt to revenues. If interest rates increase as expected in light of inflation, the future interest on government debt will also increase accordingly. Under these extraordinary circumstances, governments can only do so much. If the current frustrating situation continues, we would most likely see a change in federal administrations in future elections, as was the case in the early 1990s.
FROLITICKS 
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