Dalhousie Economics Professor Says Inflation Rates Should Drop
HALIFAX – An economics professor from Dalhousie University is optimistic that the historically high inflation rates affecting consumers across Canada will come down in the near future.
Talan Iscan, who has a Ph.D. in economics and has been with the university since 1994, could not say, however, when exactly inflation rates might drop.
“The belief is that this was a one-off event. It’s unlikely that we will continue to see an inflation rate that we have seen over the last year,” Iscan told Huddle in a recent interview.
“But certainly, the next couple months, we will continue to see inflation that’s elevated compared to most recent historical rates. But the projection is these inflation rates will not be sustained and they will come down.
“How much it will come down? It’s hard to tell at this moment.”
The inflation rate in January is 4.7 percent. That’s the highest rate the country has seen in nearly two decades.
Most concerning for Canadians is how inflation has impacted the cost of vital goods and services. The area creating the most anxiety is the cost of food. Iscan notes food prices have gone up particularly fast over the last year or more.
“People are complaining about the fact that when they go to the grocery store, they can no longer spend the same budget they spent a year ago. In some cases, it’s 20 percent more, in some cases even higher,” he said.
Iscan says there are several factors at play that are causing food prices to increase, such as energy and transportation costs.
“These are products that use a lot of fertilizer and energy prices did go up and that is reflected in the prices of these commodities,” said the professor.
“In other cases, transportation costs have gone up, not only because of fuel prices but because of shortages in truck drivers.”
Recently, Canada’s Food Price Report for 2022, which Dalhousie University contributed to, made a bleak prediction that we will pay an extra five-to-seven percent for food throughout 2022.
When asked if businesses will lower prices once inflation rates drop, Iscan had a cautiously optimistic prediction.
“That’s an excellent question. In some cases, we will see prices going to where they were before the pandemic. I include, with some optimism but not fully, food prices,” said Iscan.
The Dalhousie professor does note that a lack of grocery store competition in places like Atlantic Canada may play a role in whether or not prices come down. He admits a grocery giant could simply say “If my competitor isn’t going to reduce it, I’m not going to reduce it.”
“But under normal circumstances, I would expect those prices to come down; not necessarily exactly to where they were before the pandemic, but something close to it.”
Trying to explain why inflation is happening is complex and there are so many variables at play. But Iscan agrees Covid-19 was a trigger or sorts, even if it’s too simplistic to blame everything on the pandemic.
“I think it was definitely a trigger, because up until Covid, the inflation rate was (lower).”
Some have argued that inflation has been pushed by the billions upon billions of dollars the federal government has used to support incomes and businesses since 2020.
Iscan agrees the government’s monetary policy does have some effect but doubts it can used as a scapegoat for the whole inflation problem.
“It is difficult to say how much of the current inflation to due precisely because of that monetary policy,” said Iscan. “Most economists would argue that it may have some impact but certainly cannot explain the entire six percent we have seen.”
Iscan also notes that there have been positive economic outcomes caused by Covid-19 supports.
“In the United States and in Canada, somewhat ironically, poverty actually declined because of generous government programs,” he said.
The big question is how can high inflation be combatted? Could government put a price cap on essential goods (much like Nova Scotia did with its recent rent cap)? Or maybe the Bank of Canada can increase interest rates (which they declined to do towards the end of 2021).
Iscan argues that, while combating inflation is important, it is more important that we have policies that give people a wage that reflects the cost of living.
“Anti-inflationary policies are important but I would suggest equally important are those social policies and wage policies that allow people to earn a living wage, even though the inflation rate may be (high).”
“I would love to have low inflation and strong anti-poverty programs, but the reality is right now the inflation rate is high, so we need to make sure our wage policies are commensurate with that.”
Derek Montague is a Huddle reporter in Halifax. Send him your feedback and story ideas: [email protected].