Inflation and the R word.

COVID variants. Inflation. Interest rates. And now, recession. It seems as though we are being exposed to a new crisis with every cycle of the moon. No wonder consumer confidence is, at best, ambivalent.

The latest round of chatter from the nation’s economists says Canada will likely see an economic downturn toward the end of this year. It has happened before as the central bank fought to control inflation.

But the news is not all bad. The Canadian economy is strong. Unemployment is at a historic low and GDP growth is the best in the G7. Even the key items driving inflation have an upside. High fuel prices are boosting Canada’s important energy sector and high food prices are bolstering the country’s agriculture industry.

None the less, the economists point out that, inflation is eating away at the spending power that was accumulated during the pandemic. Sharply rising interest rates have already cooled the demand for housing and softened real estate prices, while increasing the burden on debt-laden Canadians.

The current debt-to-income ratio shows the average Canadian household owes $1.83 for every dollar of disposable income.

The expectation is, GDP will contract through the middle quarters of next year.



Generally, though, the economists seem to agree that any possible recession will be relatively moderate and short. And they continue to use the phrase “soft landing” when talking about the economy returning to normal. And once inflation is in check the Bank of Canada will be able to start reducing interest rates.