With May inflation stats hitting 3.6%, the highest in a decade, here’s a brief outline of how inflation has affected Canada in the last several decades. From a 20% high in the aftermath of WW2, to the high inflation of the late 70s and early 80s, and the low inflation of the 90s and 2000s, Canada has gone through a roller coaster ride of booms and busts. 

The post-war golden age

In the aftermath of the tumultuous 1940s and WW2, Canada emerged as an economic, military, and industrial powerhouse. Inflation had peaked in the war to levels close to 20%, the highest we’ve ever had in the 20th century, but rapidly fell. While the 1950s saw some serious inflation, the situation calmed and from the late 1950s through the 1960s and early 70s, Canada was the home of solid economic growth, huge employment opportunities, and stable, low inflation. The end of the U.S. dollar gold standard in 1971 and the oil price shock of 1973 ended the stability of the golden age and ushered in the ups and downs of the last several decades.

Trudeau Sr. and the inflationary 1970s

No one can deny that Pierre Elliott Trudeau was a charismatic, visionary leader who had guts and who painted on a broad canvas. He believed in a united, cosmopolitan, multicultural Canada open to the world with a strong federal government and a mixed economy. He created a state owned oil company, increased the size of the federal government, enhanced Canada’s sense of self and sovereignty, and faced down separatism. But his policies didn’t come cheap. Under Trudeau, federal spending rose from $67 billion in 1979 to $109 billion in 1983. Deficits rose, and debt skyrocketed. All of this frothy fiscal policy led to serious inflation at the time. Canada went from a consistently balanced fiscal position in the 1950s and 60s to a structural deficit which persisted from the late 70s to the late 90s. Trudeau’s last budget as PM included a massive $32 billion deficit, equal to almost 8% of GDP.

The roaring 80s and the high rates that followed

There were massive economic, political, and financial changes to Canada’s economy in the 1980s, in many ways we’re living today with the realities of decisions made in that decade. Deregulation, free trade, and rapid economic growth were the name of the game. While Canada saw significant de-industrialization in this period, the service sector grew and the economy financialized. Inflation in the period was higher than today on average, with rates in and around 4-5%. Inflation was high, but so was economic growth and credit growth. The hyperactivity of the 1980s peaked in 1989, with inflation cresting, and was then followed by rising interest rates. Interest rates were absurdly high in the late 1980s and early 1990s, peaking at 14% in 1991. These high rates quelled the inflation of the 1980s and left us with the low inflation environment we’ve been used to for so long. The cost? A severe early 1990s recession, a decade of stagnant real estate prices, and serious unemployment in the early 1990s. This was the hangover of the 80s boom that was done away with by the tech and dot.com boom of the mid to late 1990s.

Federal austerity and budget surpluses in the late 1990s

Under Prime Ministers Chretien and Martin, the federal government cut back spending, implemented across the board cuts, and embraced tough austerity measures to stabilize federal finances. These decisions did not come easy and led to serious political and social changes, but they worked. Canada went from a $30 billion deficit in 1995 to a $3 billion surplus in 1997. Surpluses continued from 1997 until 2007-2008. At their high point in 2000, Canada enjoyed a whopping $20 billion surplus. Federal debts evaporated, interest rates and inflation locked in at enviable and stable levels, and economic growth persisted.

Low inflation has been the norm since the mid to late 1990s

For well over a decade, Canada has enjoyed stable  inflation between 1-3%. This low, predictable, and stable inflation has underpinned low, predictable, and stable interest rates which have facilitated a real estate boom, strong consumer spending, and economic stability. 1-3% inflation has been the norm from the mid 1990s to COVID, although we have had periods of rising inflation in the early 2000s. The big threat to inflation in this period was high oil prices and the commodity boom that preceded it. That surge had an impact on consumer prices, but was generally beneficial to the country as it filled government coffers and supported a big boost to the balance of payments. Canada’s record of low and stable inflation has mirrored most OECD and developed countries in this period.

And not here today, we have “fingers crossed” that post Cover will not lead to runaway inflation… but of course as everything… time will tell.