The Enemy Within: Why Inflation Is the Real Threat to Our Prosperity
By Ed Fast | Distinguished Fellow, Macdonald-Laurier Institute
As governments across the Western world pour billions into defence budgets and foreign aid, wringing their hands over the war drums beating in Eastern Europe and the Middle East, a quieter but just as insidious enemy is waging its own war — right here at home. That enemy is inflation. Unlike the conflicts in Ukraine and Iran, this one strikes every Canadian family, every senior on a fixed income, every young person dreaming of homeownership. You cannot negotiate with inflation. You cannot impose sanctions on it. But left unchecked, it will do more damage to the social fabric of this country than any foreign war.
Let’s be honest about what inflation actually is: a hidden tax. Since 2022, grocery prices in Canada have risen by roughly 22 percent — nearly double the increase in other consumer prices. That burden does not fall equally. The wealthy absorb it; they hold assets that appreciate in inflationary environments. But for the working family trying to pay rent, fill the tank, and put food on the table, inflation is a financial body blow that strikes month after month. It widens the gap between the affluent and everyone else, silently and without debate.
The affordability crisis gripping Canada today is not a temporary blip. It is the compounding result of years of loose monetary policy, pandemic-era quantitative easing (money printing), and chronically high government spending. Central banks kept interest rates near zero for far too long, flooding the economy with cheap credit. The predictable consequence was an inflationary surge that peaked at over eight percent in 2022 — levels not seen in four decades. Although headline inflation has moderated, Canadians are not experiencing lower prices. They are experiencing prices rising more slowly on a base that is already dramatically higher than five years ago.
Canadians should not be fooled by the apparent return of headline inflation toward the Bank of Canada's two to three percent target. That number masks a far more painful reality at the grocery store and the gas pump, where food and fuel inflation continues to run well above the headline figure. When families can’t afford to fill their carts or their tanks, no central bank target provides comfort. The index may be improving. The lived experience is not.
Housing tells the same story. In Vancouver, Toronto, and increasingly mid-sized cities, average home prices have become disconnected from average incomes in ways that would have seemed unthinkable a generation ago. Young Canadians are not buying their first homes in their late twenties as their parents did — they are renting into their forties, building no equity and no generational wealth. This divergence between those who own property and those who do not is one of the most potent drivers of social division in Canada today.
Several structural forces are compounding inflation's persistence. Supply chain fragmentation, the global shift toward reshoring, energy transition costs, different forms of carbon pricing, and wage-price spirals in key sectors all add upward pressure. So do demographic realities — an aging population drawing on public services while a shrinking workforce supports them, creating spending demands that governments will struggle to finance without further debt and the inflation that follows.
One structural pressure has been conspicuously absent from polite political conversation: the inflationary consequences of poorly managed immigration and refugee policy. Canada welcomed record numbers of newcomers in during the Trudeau years, far outpacing its capacity to house and absorb them. The result was predictable. Demand for housing, healthcare, and social services surged ahead of supply. Rents spiked. Shelters filled. Municipal budgets buckled. Canada needs immigration — it is essential to our economic future and reflects our best values. But immigration policy driven by political optics rather than sound planning is not compassionate. It is reckless. And ordinary Canadians, including many who arrived before the floodgates opened, are paying the price.
The political consequences of sustained inflation should alarm every thoughtful Canadian. When people feel that hard work no longer translates into a dignified life, populism fills the vacuum. We have witnessed this in the United States, France, Hungary, and increasingly in Canada. The convoy protests of 2022 were in part a manifestation of exactly this frustration. That frustration has not dissipated. It has merely found different vessels.
None of this minimizes genuine geopolitical threats. Russia's war against Ukraine demands Western resolve, and Iran's destabilizing influence requires vigilance. But Canada's most important contribution to global stability is a strong, cohesive society at home. A country hollowed out by affordability despair, riven by resentment, and populated by citizens who have lost faith in institutions is not a reliable partner to its allies — it is a country vulnerable to the very authoritarian influences we claim to oppose.
The prescription is clear, if not easy. Governments must restore fiscal discipline. Regulatory barriers to housing construction, energy development, and business investment must be cut. Monetary policy credibility must be preserved. And supply-side reforms — more homes built, more energy produced, more goods moving efficiently — must become the centrepiece of economic policy.
The wars abroad capture headlines. But it is the war on inflation at home that will determine whether Canada emerges from this decade as a confident, united, and prosperous nation — or one fractured by the resentments that only economic despair can breed. That is the battle that deserves our full attention. That is the enemy we cannot afford to ignore.
Ed Fast served as Canada's Minister of International Trade from 2011 to 2015. He is a Distinguished Fellow at the Macdonald-Laurier Institute.