The Hemisphere: Where’s It Going to End?

“Under great inflationary pressures, you must have . . . direct controls,” said U.S. Economic Stabilizer Eric Johnston last week during a television interview at Washington. “I’ll give you one illustration of it, and that is Canada.” His point: Ottawa’s program of drastic fiscal controls was not going so well as the U.S. policy of price & wage ceilings. Next day Ottawa announced that the cost-of-living index had jumped another 2.1% in May to 184.1%; it had virtually reached the U.S. level of 185.4%. Since Washington applied price & wage controls last January 26, the U.S. index has climbed 2.1%; during the same period, the Canadian index went up 5% (see chart).

Most Canadians had learned the bad news in other terms than index percentages. Said Colin Lowery, a Vancouver clerk: “I bought a pair of shoes for my daughter yesterday for $9.25. I bought the same shoes six weeks ago for $7.95. Where’s it all going to end?” In Winnipeg, during the past month, an enterprising butcher sold 5,000 Ibs. of horse meat, for human consumption, up to 53¢ a lb.; meanwhile, city sales of beefsteak, at 95¢ a lb., decreased by as much as 50%. The price spiral had labor unions yelling for sharp wage increases.

The government was far from conceding Eric Johnston’s point. Though resentment against the rising cost of living had contributed to the Tory sweep in four recent by-elections, the Liberal government stuck to its policy of fighting inflation with fiscal controls: limiting credit and boosting taxes. Government economists insisted that without the patriotic pressures of all-out war, direct price & wage controls could not be enforced.

Ottawa held that fiscal measures would ultimately pay off. Statistics showed that the credit limits and new taxes were appreciably cutting bank loans, capital expansion projects, sales of durable consumer goods. The deflationary pressure trend would be increased by a 20% hike in income taxes effective July 1. The government had until October, when Parliament reconvenes, to prove its point. If the cost-of-living index is still zooming then, the political pressure for direct controls will be difficult to defy much longer.