Not unexpectedly, the Bank of Canada raised interest rates another quarter point yesterday because inflation is becoming sticky, particularly in the core measures that they use to strip out the highly volatile measures like gasoline prices. If you read through the Monetary Policy Report, which shows the state of the global and Canadian economies, economic growth in Canada remains stronger than expected—too strong to tame inflation—and there is still too much demand in the system, particularly for services as opposed to goods, which is keeping those prices higher, as they are especially sensitive to the tight labour market. To that end, the Bank is now expecting inflation to last around three percent for most of the next year before finally getting back to the target of two percent, which is later than they anticipated because economic growth is still too strong.
The Bank of Canada increased its key policy rate another 25bps to 5% on the heels of a previous 25 bps hike in June that followed a conditional pause after January’s 25bps raise. It signalled future meetings are live for more rate increases. #cdnecon 1/9https://t.co/xV8VHDfUTv
— Brett House (he/him) (@BrettEHouse) July 12, 2023
The Bank of Canada noted that “Canada’s economy has been stronger than expected, with more momentum in demand” related to retail and… #cdnecon 3/9 pic.twitter.com/nMGfzZe7Wd
— Brett House (he/him) (@BrettEHouse) July 12, 2023
The #BoC Governing Council underscored that “underlying price pressures appear to be more persistent than anticipated”, with “with three-month rates of core inflation running around 3½-4% since last September.” #cdnecon 5/9 pic.twitter.com/kff5aBNbsg
— Brett House (he/him) (@BrettEHouse) July 12, 2023
The Bank’s new projections see headline inflation at 3% y/y through 2024 and declining to its 2% target only in 2025, a full year later than previously expected. #cdnecon 7/9 pic.twitter.com/zsjQHP3YTQ
— Brett House (he/him) (@BrettEHouse) July 12, 2023
Meanwhile, Pierre Poilievre continues to spout absolute nonsense about the causes of this inflation—it’s not government spending, and that isn’t indicated in the MPR anywhere—and lo, media outlets like the CBC simply both-sides his talking points rather than dismantling them. He’s talking about how he’s going to cut taxes, which would actually fuel inflation rather than do anything to tame it (and no, carbon prices are only marginally inflationary and cutting them would do nothing to slow it). And then there’s the NDP, who think that the Bank should lay off and instead use windfall taxes, as though “greed-flation” is what’s driving inflation (again, not indicated anywhere in the MPR). But as economist Stephen Gordon has pointed out, this kind of promise of painless measures to fight inflation are the provenance of quacks and faith healers. It won’t help, and it will make things worse.
The NDP continue to insist that a windfall tax will solve inflation painlessly, which to paraphrase @stephenfgordon is the provenance of quacks and faith healers. #cdnecon pic.twitter.com/clyqQPvRpk
— Dale Smith (@journo_dale) July 12, 2023
Ukraine Dispatch:
It was a third consecutive night of Russian drone attacks directed to Kyiv, and falling debris has killed one person. Elsewhere, Ukrainian troops are reporting “some success” around Bakhmut.
https://twitter.com/kyivindependent/status/1679340673357557761
https://twitter.com/davidakin/status/1679031785764659201
We’re working with international partners to detect, correct, and call out the Kremlin’s state-sponsored disinformation about Ukraine.
Read the latest information based on Canadian Forces Intelligence Command analysis. 1/6 pic.twitter.com/UsojlBz8Pq
— Canadian Armed Forces (@CanadianForces) July 12, 2023