Politicians face a significant challenge with past inflation

Inflation is finally getting back under control, but voters are still angry about the steep hikes in many prices over the past four years. Governments and central banks are clearly winning the war against inflation, with rates falling in most countries. However, the public remains concerned about the cumulative change in prices since the pandemic, not just the latest inflation rate.

The disconnect between policy-makers and voters is evident, with voters feeling unforgiving despite central banks’ efforts to reduce inflation. In the G7 countries, year-over-year inflation had fallen to 2.9% as of April, down from its peak of 7.1% in 2022. While this may seem like progress, the public is more focused on the overall impact of rising prices over the past few years.

Factors contributing to voter dissatisfaction include the failure of incomes to keep up with the loss in purchasing power, the impact of rising interest rates on borrowers, increasing taxes, and a weakening economy. In the U.S., consumer prices have risen faster than hourly wages, leading to a decline in real wages over the past few years.

In Canada, hourly wages have not kept pace with the rising cost of living, particularly in essential areas like food and shelter. Higher interest rates have made borrowing more expensive, further straining the finances of Canadians. Additionally, tax hikes and increased user fees have eroded purchasing power for many households.

To address this discontent, a more productive business sector and a slimmer, more effective government are needed to generate higher wages and job opportunities. Political leaders are beginning to recognize the importance of fiscal prudence and economic growth with a social safety net to support those in need.

As voters continue to express their frustrations with the current economic climate, there is hope that a shift towards policies that prioritize economic growth and support for the middle class will help alleviate some of the financial pressures facing Canadians.