I recently had the pleasure of joining the CBC to discuss two major stories dominating the global headlines right now: the economic fallout from the ongoing conflict in the Middle East and a set of unprecedented legal rulings against tech giants Meta and YouTube.
If you missed the live broadcast, you can watch the full interview right here. For those who prefer a quick read, I’ve broken down my main speaking points and the key takeaways from our discussion below.
The Middle East War Impact on Inflation
Just as the global economy was showing signs of strengthening at the start of the year, the conflict in the Middle East has revived the spectre of inflation. The OECD’s recent updated outlook sharply increased inflation forecasts for major economies, expecting the G20 average to jump to 4% this year.
Overall, this is bad news for the economy. Similar to the shocks we saw during COVID-19, this is a supply-side issue. Higher gas prices impact everything that requires transport, and that naturally gets passed down to consumers. The big question right now is the length of this shock and whether it warrants intervention.
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If the shock is transitory: If the conflict settles down soon and oil prices normalize, we shouldn’t expect the Bank of Canada (BoC) to do anything. Prices will correct themselves in time.
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If the shock extends: If the conflict drags on, consumer expectations of inflation will rise. This would force the BoC to act to keep inflation down, artificially constraining the economy; a necessary evil to limit long-term damage.
As always, the looming risk here is stagflation. If inflation becomes entrenched while the oil shock halts economic growth, the risk of not acting is far higher than the risk of acting. The BoC may judge that it is better to induce a mild, quickly recoverable recession to kill inflation, rather than suffering through stagnant growth paired with high prices.
Fortunately, the OECD report suggests a relatively minor inflation impact for Canada (around 0.3%) compared to the US (1.2%), largely because energy makes up a smaller portion of our consumer basket. However, if you are planning a holiday, be prepared. Jet fuel prices have spiked significantly, and airlines have been caught off guard. Due to the rising costs of hedging, many airlines stopped protecting themselves against fuel price volatility. For example, while Air Canada had hedged 17% of its costs, those hedges were against crude oil, not jet fuel, which has risen much faster due to refining costs.
Meta, YouTube, and the Changing Legal Landscape of Social Media
The most fascinating aspect of this lawsuit is the legal strategy. Historically, tech companies have hidden behind Section 230 of the 1996 Communications Decency Act, which protects them from liability regarding the content posted on their platforms. This lawsuit bypassed Section 230 entirely by focusing not on what content was shown, but how it was shown. We have known for a long time that these platforms are engineered to maximize engagement. The plaintiffs successfully argued that this specific engagement design directly caused mental health issues.
From a business perspective, not much will change in the immediate short term. These companies will inevitably appeal the decisions. The true point of interest is how successfully this legal argument can be replicated in other jurisdictions, as every country and state has its own unique consumer protection laws.
Here in Canada, we are already seeing movement. The current lawsuits against Meta in British Columbia and Ontario are taking a similar structural approach, though they follow the legal reasoning of a recent New Mexico ruling rather than the Californian one.
Watch the full segment: You can catch all the details and the complete discussion at the top of this post, or on the CBC website by clicking here.
