• doylio@lemmy.ca
    link
    fedilink
    arrow-up
    8
    ·
    1 year ago

    Certainly some of inflation is caused by a decade of rock bottom rates. Our real estate bubble is probably partially caused by this

    Ultimately, the BOC has a mandate to fight inflation, and very few levers to use. They cannot fix the supply chain issues, but they can quash demand, so that is what they will do

    • EhForumUser@lemmy.ca
      link
      fedilink
      arrow-up
      5
      ·
      edit-2
      1 year ago

      but they can quash demand

      Can they? Remember, it is interest costs that are driving inflation.

      The mortgage interest cost index (+29.9%) remained the largest contributor to the year-over-year CPI increase. Excluding mortgage interest cost, the CPI rose 2.5% in May

      https://www150.statcan.gc.ca/n1/daily-quotidien/230627/dq230627a-eng.htm?indid=3665-1&indgeo=0

      We’ve entered this interesting feedback loop where the higher the interest rates go, the higher the interest costs go, the higher inflation goes, the cheaper it becomes to service debt (debts shrink in an inflationary environment), the more compelling it is to carry such debt, the higher the interest rates go, the higher the…

      While it is incorrect to say that the BoC only has one lever, it is true that they have few tools to work with. It is unlikely that any of their tools are appropriate for the situation we face now. Raising interest rates certainly won’t solve the problem – it is the problem.