Focus On World-wide Inflation

For the past decade, Canadians have been living with the most sustained, high rate of inflation since Confederation. During the ten years 1973-1982, inflation averaged over 9 per cent and reached a peak of 12.5 per cent in 1981. This is a rate of price increase almost three times that of the previous decade and nearly six times the inflation rate of the decade before. But, looking abroad during the 19705, some Canadians drew cold comfort from the observation that most other countries seemed to be embroiled in the same inflationary fire. Annual inflation rates reached 12.7 per cent in the United States, 19 per cent in Italy, and 22 per cent in the United Kingdom.

Commentators in Canada, especially politicians, spoke of inflation as a world-wide phenomenon, suggesting that Canada was the unwilling victim of rising prices. Blame for inflation was apportioned to rising international oil prices, labour union greed, and astonishingly high interest rates. What with foreigners, organized labour, and capitalists pressed into service as perpetrators of inflation, it is hardly surprising that the average Canadian felt acutely uneasy with the economic path Canada was following. The world seemed set on a spiralling path toward inflationary Armageddon.

By 1983, however, Canadian inflation had fallen to levels similar to those found in the United States and the United Kingdom. And, unlike the 1970s, Ottawa was eager to take the credit. Indeed, there does seem to be a difference between the decades as inflation has remained "stubbornly" high in Italy (13 per cent), France (17 per cent), and many other countries. The world-wide inflation of the 1970s appears to have given way to an era of national inflations.

The inflation rate in Canada has returned to a pre-1970s rate of 5 per cent per year or so, but, unlike the pre-1970s, the rates of inflation around the world seem to be largely independent of one another. The cooling of domestic inflation and the apparent independence of national inflation rates suggest that now is an appropriate time to step back and explore the facts of the inflationary experience of the 1970s. For example, was inflation an unavoidable phenomenon, a policy made abroad of which Canadians were supine recipients? Was labour greed the cause of the prolonged inflationary experience as the 6-and-5 program attempted to maintain, and did interest rate policy exacerbate the existing inflation? Finally, what role did the U.S. abandonment of the gold standard in 1971 play in the subsequent developments?