Once again, the Bank of Canada has raised its benchmark interest rate — this time to 4.25 per cent — reassuring us that its seemingly unending series of hikes are going to eventually help take the bite out of inflation.
It has a ways to go. Inflation is currently 6.9 per cent and the central bank wants it back at two per cent.
But for many Canadians, all they’ve seen is gas and food and just about everything else stay more expensive than ever, while mortgage rates soar.
CBC News readers have asked: So how is increasing interest rates actually supposed to be helping? According to economists, making it tougher to afford things is part of the plan.
Why is the Bank of Canada increasing interest rates so much?
In 1991, the Bank of Canada and the Canadian government decided that “low, stable and predictable inflation” would be the best thing for Canadians — and they agreed that a target inflation rate was two per cent.
That’s around where it’s been in Canada for the past 25 years.
But about a year ago, inflation started to rise — and rise, and rise — due to several factors, including supply chain issues that resulted from pandemic lockdowns, the war in Ukraine and climate change.
To get it down, Governor of the Bank of Canada Tiff Macklem says interest rates must go up.
“It’s a bit counterintuitive for Canadians,” he told CBC’s Peter Armstrong last month.
“Their rent’s going up, their groceries are more expensive, gasoline is more expensive. And now their borrowing costs are more expensive. So how does that work? Well, that does slow spending. That makes anything you buy on credit more expensive. So you you pull back and that helps get the economy balanced and that’ll relieve those price pressures.”
And that’s the whole point.
The Bank of Canada wants people to buy less stuff and slow the economy down. When the economy slows down, it says, prices will come down.
At the same time, there is a tacit acknowledgement that it’s going to hurt.
“Our economy will slow as the central bank continues to step in to tackle inflation,” said Finance Minister Chrystia Freeland in October.
“There will be people whose mortgage payments will rise. Business will no longer be booming in the same way it has been since we left our homes after the COVID lockdowns and went back out into the world. Our unemployment rate will no longer be at its record low.”
How does raising interest rates slow inflation?
Macklem says the economy is still “overheated” — with demand high and supply low. And the difference between the two drives prices up.
So in the central bank’s reasoning, if it can get demand down — get Canadians to want to buy less — that pressure on supply will ease.
“We do need to slow the economy,” he said. “We don’t want to over-slow it. We don’t want to make this more difficult than it has to be.”
But at the same time, he said, if they do it in a half-hearted way, it will just prolong the pain.
Won’t it just make it harder to pay my mortgage or utilities and buy necessities like food and gas?
For now, yes. And Sheila Block, senior economist at the Canadian Centre for Policy Alternatives, points out that inflation has a really different impact depending on a person’s income level.
“The cost of food, rent, gas — all of those have paced above the overall [consumer price index] rate,” she told Power and Politics.
“And that is really going to have a tough impact on those lower-income people who spend a larger share of their income on those essentials. And also people who don’t have that kind of cushion to ride this out.”
Is hiking interest rates the only way to get inflation down?
Not according to economist Jim Stanford. The director of the Centre for Future Work told CBC News that a broader mix of policies is needed.
“I think that our tool-kit itself needs a more diverse set of tools.”
Stanford says the government needs to introduce longer-term structural policies to address what he calls “the true causes of this inflation” which he says include “supply chains, energy price shocks, and the housing crisis in most parts of Canada.”
He says raising interest rates will do nothing to help global supply chains.
“In fact, they’ll probably make things a little bit worse because they discourage investment in new capacity and infrastructure by businesses,” he said on the CBC podcast Front Burner.
“What they will do, though, is basically throw a giant bucket of ice water over the entire economy. And we’re already seeing the signs are that we’ve seen a dramatic slowdown in employment growth. We’ve seen a dramatic slowdown in GDP growth. And this is just the beginning.“
He says it would be more effective to try and cool off “the least productive sort of froth in the economy,” such as the housing market. He suggests making better use of rules on mortgage insurance and stress tests “to cool off the property bubble without having to hammer the whole economy with higher interest rates.”
I’m hearing this slowing of the economy could send Canada into recession.
Some economists are indeed suggesting that Canada could be headed for a recession in 2023.
“I think a recession is both likely globally and most probable in Canada,” said former Bank of Canada and Bank of England governor Mark Carney in October.
The good news is, he also thinks it won’t be deep or long, citing the country’s strong labour market and low unemployment as reasons why Canada will do better than other countries.
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Macklem is optimistic, too.
“This is the biggest test we’ve ever had. But monetary policy works. It takes time to work. And we do have to go through a difficult adjustment.”
But he insists Canada will come out of it.
“Growth will pick up. We’ll have solid employment growth and we’ll have low inflation.”
The Holocaust strikes our very being
To be a Jew is not something special,
being a human being is normal.
Dealing with prejudice, hatred, and oppressive action,
now that’s something special for the Jewish Nation.
Oppression, hatred, and genocide besides,
is not just a Jewish person’s situation.
Armenian, Cambodian and Jewish Peoples deal,
with a national eradication event.
People of the world unit,
genocide is an international delight.
Oppress your people, crush opposition too.
The elites of the world are making exceptions for you.
Don’t be weak, allowing excuses to be made,
but lift your hands in justice’s cruel wave.
Hatred knows no reasonability, it knows no mercy.
Hatred, oppression, and prejudice need no exception.
Long ago Jews were murdered by the millions,
Cambodians died at the hands of their neighbors.
Palestine still walks within the borders of other nations,
and peace is nowhere to be found, my friend.
If your arms are in righteous ways demand justice for all,
for the people who hate will not see our peaceful ways.
A gun, a bayonet, and a saber be brought,
for the right to justice begins today,
and ends with blood if the opposition has any say.
Gandhi spoke of peaceful ways,
while Martin Luther Jr surrendered his life. to the cause.
Young blacks die each and every day,
while the power of prejudice wins the day.
My first lifts in anger that is for sure,
while the average person just shrugs this day.
But the goose-stepping troops may one day march on,
and the ignorance that prevails will let them carry on.
Open our eyes to the wrongs before us,
clear our minds and accept what bothers us.
Injustice is a prevailing horrid thing,
and ONLY YOU CAN BRING IT TO AN END.
Parliamentarians kick off return to House of Commons with debate on child care
The economy was top of mind for members of Parliament as they returned to the House of Commons Monday, with the Liberal government kicking off the new sitting with a debate on child care.
Families Minister Karina Gould tabled Bill C-35 last December, which seeks to enshrine the Liberals’ national daycare plan into law — and commit Ottawa to maintaining long-term funding.
The federal government has inked deals with provinces and territories in an effort to cut fees down to an average of $10 per day by 2026.
During a debate today, Gould said all parties should support the bill, and the national plan has begun saving families money.
But Conservative MP Michelle Ferreri said the plan is “subsidizing the wealthy” while failing to reduce wait times for child-care spaces and address labour shortages in the sector.
Ferreri told MPs that the Conservatives would be presenting “strong amendments” to the legislation.
The debate comes amid concerns about a possible recession this year, with both Prime Minister Justin Trudeau and Conservative Leader Pierre Poilievre saying their focus will be on the cost of living.
But Poilievre’s Tories may have little room to manoeuvre in the legislature.
NDP Leader Jagmeet Singh told reporters upon his return to the House of Commons that he does not believe there is any room to work with the Conservatives during the upcoming sitting.
Instead, the NDP says it plans to push the Liberals to fulfil the terms of the parties’ confidence-and-supply agreement, such as the planned expansion of federal dental care.
Under the deal signed last March, the NDP agreed to support the minority government on key House of Commons votes in exchange for the Liberals moving ahead on New Democrat policy priorities.
This report by The Canadian Press was first published Jan. 30, 2023.
Singh meeting with Trudeau about private health care ahead of sit-down with premiers
Trudeau is expected to meet with provincial and territorial leaders in Ottawa next Tuesday to discuss a new health-care funding deal.
“The deal will be a failure if it doesn’t include major commitments to hire more health-care workers,” Singh said Monday, adding that the funding should be kept within the public system.
The last time Trudeau and Singh met one-on-one, as outlined in the confidence-and-supply agreement between the Liberals and the NDP, was in December.
Singh said now is the time for the Liberal government to make clear that funding private health-care facilities will not improve the shortage of health-care workers Canada is facing.
While health care falls under provincial jurisdiction, Singh believes the federal government could be using the Canada Health Act more aggressively to challenge for-profit care.
Ontario Premier Doug Ford’s Progressive Conservative government announced earlier this month that it’s moving some procedures to publicly funded, private facilities to address a growing surgery wait-list, which worsened during the COVID-19 pandemic.
Provinces such as Alberta and Saskatchewan have already made similar moves.
“We think the federal government should be making it very clear that the solution to the current health-care crisis will not come from a privatization, for-profit delivery of care. It’ll only come by making sure we hire, recruit, retain and respect health-care,” Singh said.
“Health care is already dramatically understaffed, and for-profit facilities will poach doctors and nurses — cannibalizing hospitals, forcing people to wait longer in pain and racked with anxiety.”
The New Democrats say they’re also concerned that private facilities will upsell patients for brands and services not covered by the province, and tack on extra fees and services.
On Saturday, federal Health Minister Jean-Yves Duclos said his Liberal government will ensure people don’t use their credit cards for health-care services and health care will remain universally public.
Singh is also expected to request an emergency House of Commons debate on the privatization of health care Monday afternoon.
If the request is granted, the debate could go ahead as early as Monday evening.
Health care is a top priority for the leader as members of Parliament return to the House Monday following a holiday break.
Singh spent some of that time away holding roundtable discussions on health care in British Columbia to discuss emergency room overcrowding and worker shortages.
This report by The Canadian Press was first published Jan. 30, 2023.
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