Pattie Lovett-Reid

Chief Financial Commentator, CTV

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Forgive me if you have heard this term before: "transitory," meaning inflation is supposedly temporary.

Year-over-year, when you look at the base effect on prices, it makes sense to be patient. During the height of the pandemic, gas prices hit lows of around 60 cents a litre. Because no one was driving and oil prices were way below current levels. So, naturally, gas prices are higher now. This is just one example of why year-over-year comparisons don't always work in highly volatile components.

However, inflation is currently a hot topic for investors, economists and politicians in the midst of the federal election campaign. Prices have been going higher and compromising the discretionary income of Canadians.

If ever there was a political pocketbook issue, it is this one.

Canadians have been paying more for housing, fuelled by the desire to find more room to live and work supported by a low interest rate environment. Foods prices have been on the rise. Supply chain disruptions has resulted in shortages of building supplies, semiconductors, cars, home appliances, and the list goes on. On top of all of that, inventory levels are currently low and stockpiles typically sold off at this time of year simply aren't happening.

For Canadians, there are few deals to be found.

Higher prices are likely more of an issue for Canadian consumers and politicians than for the Bank of Canada.

The Bank of Canada could respond to higher prices by raising rates, but is unlikely to do so. By increasing rates, the economic recovery that is underway could be compromised.

Politicians can encourage Canadians to spend, and while the Conservatives say they’d establish a GST holiday in December if they form government, I'm not confident one month is enough to move the dial.

With inflation hovering near a 10-year high and small businesses continuing to struggle, it is imperative that politicians pay attention to the cost of living. Avoidance isn't a strategy for the long term. There is a golden opportunity now to help Canadians increase their disposable income.

To get consumers to spend, a six-month moratorium on GST would be far more impactful. And businesses that rely on consumer traffic would benefit from loans of five to 10 years interest-free to give them further wiggle room.

If inflation is in fact temporary, the good news is that rates will be lower for longer and that will encourage spending by adding to disposable income.