Canada Ends Money Printing, To Hike Rates 7X In 2022 To Fight Inflation

[Monster647 444]

25 minutes ago, Economy said:

Im not saying i agree with this projection or with what the market is pricing

 

That being said rates havent been this higj in 13 years but inflation hasnt been this high ib 19 years so theres that, so never say never

 

But yeah, im not inclined to believe rates will go that high by 2022-Q4 either. The amount if leverage in economy means each quarter point increase will have a lot more braking power in economy than past cycles

I do not think Inflation is naturally high though.

Inflation is high mostly because of (1) higher government spending (like how our government have been handing out minimum wage pay checks to anyone who lost their jobs in the pandemic including part time workers who were making like 6k gross/year which is not even half of what they were getting out of blue during the pandemic), (2) pandemic-related supply chain issues for consumer goods for which demand remains the same. 

These are not the kinds of stuff BoC can influence by raising rates. 

Now an important component of Canadian CPI is shelter so inflation comes higher when housing appreciates a lot too. 

This BoC can influence by raising interest rates but it would be at the risk of ruining businesses who didn't factor in interest rates being in 3%s if they increase 7 times. I don't think they can increase by more than 2-3 times in a year... Interest rate isn't the only component of the inflation at the end of the day. The only part of this equation where I can see higher interest slowing down inflation is in housing domain which cannot be influenced without also influencing borrowing cost of businesses. 

[Economy 52,860]

4 hours ago, Monster647 said:

I do not think Inflation is naturally high though.

Inflation is high mostly because of (1) higher government spending (like how our government have been handing out minimum wage pay checks to anyone who lost their jobs in the pandemic including part time workers who were making like 6k gross/year which is not even half of what they were getting out of blue during the pandemic), (2) pandemic-related supply chain issues for consumer goods for which demand remains the same. 

These are not the kinds of stuff BoC can influence by raising rates. 

Now an important component of Canadian CPI is shelter so inflation comes higher when housing appreciates a lot too. 

This BoC can influence by raising interest rates but it would be at the risk of ruining businesses who didn't factor in interest rates being in 3%s if they increase 7 times. I don't think they can increase by more than 2-3 times in a year... Interest rate isn't the only component of the inflation at the end of the day. The only part of this equation where I can see higher interest slowing down inflation is in housing domain which cannot be influenced without also influencing borrowing cost of businesses. 

I beg to differ. The increased payouts from those checks as u mentioned are extra income and thus demand whether it happens naturally thru business cycle or because government artificially gave people extra income i dont think is really relevant, either way consumer power increases and so does demand. Rate hikes do exactly that, damper consumer demand.

 

I agree to cool housing theyd hurt businesses too. But im not arguing against that, as i said i agree with u were not getting 7 hikes. But i disagree they cant fight inflation. If they chose to pull the trigger it would cool housing inflation too

 

The only inflation factors rates cant control is the supply chain desruptions and commodity prices including energy. But even that is not totally detached from rates. Since rate hikes increase currency, that in itself would also help with inflation on commodities and other imports

 

So higher rates would fight inflation. Whether or not they will actually do it given the fragile economy is another whole debate. U dont think they will hike much and for the record im not disagreeing with u there