US-Canada inflation gap widens – leading macroeconomic influencers
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US-Canada inflation gap widens – leading macroeconomic influencers

14 Jul 2021

US-Canada inflation gap widens due to the strength of the Canadian dollar and quicker reopening on the stateside with supply chain disruptions.

US-Canada inflation gap widens – leading macroeconomic influencers
Credit: Casper1774 Studio, Shutterstock.com.

Economists expect inflationary pressures in both countries to moderate and fully converge as transitory impacts fade.

Beata Caranci

Beata Caranci, chief economist and senior vice president at the TD Bank Group, shared an article on inflationary pressures being felt by both Canada and the US, but prices pressures being felt stronger south of the border. Governments have started lifting public health measures and vaccinating swathes of population as the Covid-19 pandemic finally shows signs of ebbing away. A Canadian report highlights how prices pressures are being experienced by both the countries and its implications for the future.

The report highlighted that as of May, the year-over-year US inflation rate was running about 1.5 percentage points stronger post pandemic. Economists believe such a wide gap is unusual as inflation rates characteristically follow similar dynamics in the two countries.

As the Canadian economy picks pace in the coming months, contributed hugely by the robust vaccinations, a narrowing in the US-Canada inflation gap is expected, with the Canadian year-over-year rate set to peak in the third quarter of 2021.

Ludovic Subran

Ludovic Subran, chief economist at Allianz, retweeted an article on how European households spend their excess savings to determine whether the economic recovery marks a return to the pre-Covid growth path or ushers in a more inclusive and sustainable recovery. Economists believe that the best option for policymakers is to channelise the households’ cash buffers in long-term green investments and digital transformations.

Reduced spending mainly on services during the pandemic has contributed to the swelled European households’ savings  by $530bn in 2020 alone. In addition, renewed restrictions in the first half of 2021 may have contributed another $235.6bn to the total savings.

As Covid restrictions ease, households have begun spending, but experts state that much of excess savings have been accumulated by the rich who tend to consume less. Moreover, it is being speculated that most households will regard the excess savings as a positive wealth shock. As a result, households will remain cautious about the lasting effects and spend less.

Ioana Marinescu

Ioana Marinescu, an assistant professor of public policy at the University of Pennsylvania School of Social Policy and a faculty research fellow at the National Bureau of Economic Research, retweeted an article on the hospitality and food service industry struggling to find workers as the pandemic fades, but many labour economists and recent studies state that there isn’t a worker shortage problem, but a wage shortage problem.

According to data, more than 75% of food service workers are considering leaving the industry due to low wages and tips. Economists further state that worker shortage is not just a reflection of meagre wages but also how the Covid-19 pandemic pushed working mothers out of the labour force to take care of their families and children. However, many have returned to work nevertheless and taken up childcare responsibilities.

Economists also believe that workers are refusing to return to work post Covid due to bad jobs, implying poor wages and poor working conditions.