It seems almost too obvious to say aloud: to solve our affordability challenges, prices, which have steadily increased since the beginning of the pandemic in 2020, need to stabilize so wages can catch up. This is especially true when it comes to food inflation, which is driving up food bank usage, worsening childhood food insecurity and leading to popular anger — which has recently manifested in calls to boycott and steal from Canada’s (very profitable) grocery retailers.
The traditional story around inflation goes like this: economic shocks — like those we saw in the 1970s energy shock — increase the cost of businesses’ inputs. Because of abrupt changes to supply and demand, price levels rise or fall until the market returns to business as usual and prices and wages recover at their normal pace of growth.
But what if businesses, to maintain their profit margins without interruption from shocks, decide to pass on the costs of these shocks to everyday people? As prices are “social relations” between corporations and consumers, it would not seem unreasonable that prices increase dramatically amidst a global pandemic. But this new, higher price —far ahead of wages — becomes a “new normal,” while shareholders rake it in.
This is the fundamental thesis of the “sellers’ inflation” model, as articulated by economist Isabella Weber, who is giving the 2024 Ellen Meiksins Wood Lecture at Toronto Metropolitan University on May 30. According to Weber, the traditional story does not account for today’s highly financialized and concentrated industries, which compete on who can deliver the best returns to shareholders, rather than who can deliver the best prices to consumers. Weber’s research demonstrates that even in “competitive” markets, rival companies replicate the price increases of their competitors so that they do not miss out on an opportunity to profit.
This is a recipe for an ever-worsening cost of living — and the popular anger that accompanies it. And there is evidence that we are seeing sellers’ inflation at work in the Canadian grocery market.
The Hoser, an independent Toronto-based publication, has tracked the prices of ordinary grocery store items in the GTA since early 2023. It found that the higher prices we have seen since the pandemic shock of 2020 are sticking. From cucumbers to frozen pizzas, the prices at big grocery retailers keep rising — and even with non-seasonal staples like bananas, prices haven’t returned to their pre-pandemic level. Prices are high, sticker prices have maintained their lead against wages, and consumers have continued to feel the affordability effects of COVID-19 well after the return to business as usual.
Grocers’ profits, unsurprisingly, remain at record highs.
So what can we do about it?
One solution is for workers to bargain hard so their wages catch up to prices. This is exactly what labour unions in the grocery sector are trying to do. A common refrain on grocery picket lines is that workers couldn’t afford the food they stock on shelves — fertile ground for union organizing and for job actions. But with prices so far ahead of wages, it’s clear labour has a lot of catching up to do.
The federal Liberals, for their part, have struck a grocery task force with the aim of stabilizing prices. But that task force admits it can’t launch probes and it can’t take enforcement action. It is unlikely to deliver results for working-class Canadians.
But there is another set of solutions, articulated by Weber when she proposed the sellers’ inflation model: temporary emergency price controls in critical sectors and windfall profit taxes.
If prices stick at higher levels following an economic shock, price controls can help them grow at the rate we see in normally functioning economies so wages can catch up. And as for a windfall tax, grocers engage in this behaviour so they can deliver larger profits to shareholders. If there is a ceiling to that profit, they have much less incentive to do so, and so competition can be refocused on reducing prices and outcompeting other grocery chains, keeping profits more reasonable, and keeping efforts focused on consumers and not investors.
These are measures conventional economists ought to be comfortable with, but Weber was chastized when first proposing these measures at the height of the pandemic. Her analysis has since been proven right.
Canadian workers are suffering from a persistently high cost of living. If we are to solve this crisis, it might be time to listen to the economists who were right all along.
Tickets are available for the 2024 Ellen Meiksins Wood Lecture featuring economist Isabella Weber on Thursday, May 30 at Toronto Metropolitan University. Visit broadbentinstitute.ca for details.
Clement Nocos is the director of policy and engagement at the Broadbent Institute, Canada's leading progressive, social democratic think tank, and tackles questions of public policy with an analysis of political economy for campaigns and social movements that fight for equality and justice for all.
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