Armstrong Economics: 23-06-2026,
Canada’s inflation rate accelerated to 3.2% in May, coming in above expectations and once again exposing the fantasy that inflation was somehow defeated. Policymakers spent the past year congratulating themselves for bringing inflation down, yet the cost of living continues to rise while the economy itself is sliding toward recession. This is precisely the type of stagflationary environment that governments hate because there is no easy solution. Raise rates, and you deepen the economic slowdown. Cut rates and you fuel inflation once again.
What makes Canada particularly vulnerable is that inflation is rising while economic growth remains weak. Canada has already slipped into a technical recession, household debt remains among the highest in the developed world, and housing affordability has become a national crisis. Citizens are struggling with food, energy, insurance, housing, and taxes, yet government spending continues to expand. The political class always assumes it can spend endlessly without consequence. Eventually, the bill arrives.
I have warned that Canada faces a much larger structural problem than inflation alone. The country has become excessively dependent on government spending, real estate, and debt expansion. Investment has been declining while capital continues flowing south into the United States. When governments begin relying on debt growth to maintain living standards, they enter the same dangerous cycle that has destroyed countless nations throughout history. Debt can create the illusion of prosperity, but it cannot create real wealth.
Government debt at the federal and provincial levels has exploded over the past decade while entitlement obligations continue growing.