What will finances look like after the holidays?” />
Despite inflation , people consume.
The rising cost of products and services and rising interest rates are not preventing thousands of workers from enjoying a well-deserved vacation right now. While some have had to revise their travel budget downwards, households are still spending, as indicated by the most recent data published by Statistics Canada. Are consumers likely to become disillusioned when they return from the summer break?
While most people want the economy to return to normal as soon as possible, the actions taken by the Bank of Canada to try to curb inflation take some time to take effect. The proof: despite rather aggressive interventions by the Bank of Canada in recent months, this has still not pushed commodity prices down.
L' effect of monetary policy, it can take up to two years, even three years to be felt, explains economist Philippe Goulet Coulombe, professor at the University of Quebec in Montreal. The Bank, he points out, is otherwise powerless in the face of certain external factors beyond its control.
If its interventions can have an effect on demand, they can hardly act on supply. The failure of supply chains has still not been corrected. And it would have been necessary, according to Philippe Goulet Coulombe, a more hasty intervention of the authorities concerned to avoid an inflation of more than 8%, like the one recorded this month.
The problems of & #x27;supplies were not anecdotal, but widespread in 2021, he says. They were largely created by a somewhat overpowering stimulus package in the United States, [President] Biden's plan.
US President Joe Biden has assured that the fight against inflation will be “his priority”.
The conflict in Ukraine has obviously also complicated matters. Experts expected inflation to subside on its own in 2022, but the Russian invasion that began in February added further pressure on the global economy and its effects are still being felt.< /p>
Moreover, the energy supply in Europe, which is largely dependent on Russian gas, remains an issue that could weigh in the balance. It is not clear how the supply will be settled. There are plans, but it's full of unknowns.
“Most central banks are raising rates right now. This has an effect to calm internal demand, but not to stop the war in Ukraine and its economic repercussions. »
— Philippe Goulet-Coulombe, professor in the Department of Economics at UQAM
Returning from the holidays could therefore be difficult for some, since the price of goods and services is not about to decrease. Households are already having to tighten their belts at the same pace as the increase in products and the rise in mortgage rates.
And for those who have big plans… there too, it may be more difficult. It is clear that in the short term, this has an effect on people who want to take out a large loan to buy a house, a condo and even a car. That's the goal: to calm people down in their buying urges. Clearly, there is a kind of painful phase where we have the impression that everything is against us, notes Philippe Goulet Coulombe.
The other element to watch: the rate unemployment which can increase with demand, which resumes a more normal rhythm. Nothing dramatic for the moment, however, maintains the economist. Unemployment is at an almost historic low. From a macroeconomic point of view, that it increases by a few points, it is not a disaster, he reassures.
However, the specter of a recession has still not been ruled out by economists, and this brings back rather painful memories to those who lived through that of 2008 hard. There is a post-traumatic shock of 2008. We are not [however] not in the same situation, reassures the one who did his doctorate in economics at the University of Pennsylvania in Philadelphia.
The Federal Reserve in the United States increased its key rates for a fourth consecutive time in July.
The latter reminds us that a recession is confirmed when the GDP, gross domestic product, contracts over two consecutive quarters. For the moment, the indicators do not point in this direction while the production of goods and services shows a positive balance.
Conversely, the dreaded scenario seems more likely in the United States, because the country has just experienced two successive declines in its GDP, which could still ultimately have an impact here, says Philippe Goulet-Coulombe. Canada is a small open economy. Our recessions often depend on external recessions, he explains. are expected this fall. Philippe Goulet-Coulombe, however, believes that the pace should slow down.
To continue at this pace would still be surprising. But increasing again gradually is absolutely possible. It really depends on how the economy reacts. There are a lot of upheavals at the moment. It is really a balancing act that that of the leaders of the Central Bank.