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Inflation is the steady climb in prices for goods and services, shrinking what your money can buy over time. It arises when too much money chases too few goods, a dynamic fueled by policy missteps and economic shocks. This essay examines inflation’s primary drivers, emphasizing government spending and money printing, with a focus on Canadian examples, including recent actions, grounded in hard evidence. The stakes are high: inflation corrodes savings, disrupts planning, and frays societal unity, demanding a clear-eyed look at its causes.

Government spending, especially when deficit-financed, is a key inflationary culprit. Large-scale fiscal interventions—like Canada’s $500 billion in COVID-19 relief programs in 2020–2021, including the Canada Emergency Response Benefit (CERB)—flooded the economy with cash, spiking demand. This surge, coupled with supply constraints, drove Canada’s inflation to 8.1% in June 2022, a 40-year high. A 2022 Scotiabank analysis estimated these programs added 0.45 percentage points to core inflation by widening the output gap. Historically, Canada’s 1970s deficit spending, which fueled double-digit inflation, mirrors this pattern. Recent policies, such as 2025 provincial and federal inflation-relief transfers, risk further stoking demand, with Scotiabank projecting they could necessitate a 38% share of the Bank of Canada’s rate hikes to counteract their inflationary impulse.

Money printing, through central bank policies like quantitative easing, devalues currency by expanding the money supply. In Canada, the Bank of Canada’s purchase of $400 billion in government bonds during 2020–2021 lowered interest rates to 0.25%, encouraging spending but devaluing the Canadian dollar. This imported inflation, as a weaker dollar raised import costs, contributing over 50% to inflation in final domestic demand by late 2022. Zimbabwe’s hyperinflation in the 2000s, peaking at 79.6 billion percent monthly, offers an extreme parallel, driven by unchecked money creation. In 2024, the Bank of Canada’s continued quantitative tightening, alongside a 2025 policy rate hold at 4.5%, reflects efforts to curb these pressures, though global factors like U.S. inflation still amplify Canada’s import-driven price hikes.

Supply shocks and wage-price spirals further aggravate inflation. Canada’s 2022 supply chain disruptions, exacerbated by global port delays and China’s COVID-zero policy, spiked food and energy prices—food alone contributed 1.02 percentage points to inflation. The 1973 OPEC embargo, which quadrupled oil prices, offers a historical parallel, as does Canada’s 2022 experience with Russia’s invasion of Ukraine, which drove gasoline prices to $2 per liter. Wage-price spirals, fueled by 4.5% wage growth in advanced economies in 2021, also played a role, with Canada’s labor shortages post-reopening pushing service prices up 5% by mid-2022. Current U.S. tariffs on Canadian goods, as of January 2025, threaten to raise import costs further, with uncertain pass-through to consumers, potentially sustaining inflationary pressure.

Inflation’s corrosive grip—evident in Canada’s 2022 peak and lingering 2.6% rate in February 2025—demands accountability. Government spending and money printing, as seen in Canada’s pandemic policies and bond purchases, are potent drivers, amplified by supply shocks and wage dynamics. Historical and recent evidence, from 1970s deficits to 2025 tariff risks, underscores the need for disciplined fiscal and monetary policy. Citizens must demand restraint to protect purchasing power and preserve economic stability before inflation’s tide engulfs us all.

Bibliography

• Congressional Budget Office. (1980). The Economic Effects of Federal Deficits. https://www.cbo.gov/publication/21925
• Energy Information Administration. (1974). Historical Overview of the 1973 Oil Crisis. https://www.eia.gov/history/
• European Central Bank. (2019). Asset Purchase Programmes. https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html
• Federal Reserve Bank of San Francisco. (2021). Fiscal Policy and Excess Inflation During the Pandemic. https://www.frbsf.org/economic-research/publications/economic-letter/2021/may/fiscal-policy-and-excess-inflation-during-pandemic/
• International Monetary Fund. (2009). Zimbabwe: Hyperinflation. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Zimbabwe-Hyperinflation-22603
• OECD. (2022). Employment Outlook 2022. https://www.oecd.org/economy/employment-outlook/
• Scotiabank. (2022). Canadian Inflation: Mostly Temporary and Foreign, But Pandemic Programs Have a Major Impact on Policy Rates. https://www.scotiabank.com
• Statistics Canada. (2024). High Inflation in 2022 in Canada: Demand–Pull or Supply–Push?. https://www150.statcan.gc.ca
• The Globe and Mail. (2022). The Most Important Source of Canada’s Inflation: The Government Borrowed More Than $700-Billion. https://www.theglobeandmail.com