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University of Regina economics professor Jason Childs said Wednesday’s increase to the Bank of Canada’s key interest rate is a sign Canada is back to negative pressure on the system rates.
The central bank raised the interest rate by 50 basis points to 4.25 per cent, the highest it has been since 2008. The hike Wednesday was the seventh this year.
“We haven’t seen rates this high for very long — in a very long time,” Childs told Gormley.
Childs said rates keep increasing with the goal to get inflation back to a two per cent target, but the problem is demand.
“People want to buy more stuff than there (is) available,” he said, noting that causes a positive pressure on prices — which leads to inflation.
Prices are constantly on the rise to encourage demand to “cool down.” That will give suppliers a chance to catch up, according to Childs.
In 2020, the benchmark interest rate was 0.25 per cent. Childs said there was more credit use and investing from consumers back then — but it’s time to hit the brakes.
He said it looks like Canada may be turning the corner, but the problem with moving rates this quickly is it can take effect just as fast.
One of the indicators of these pressures is core inflation, which measures how prices excluding food and fuel have changed. Childs said that’s running at five per cent, well above the target.
“With that being at five per cent, I don’t think we are anywhere near putting this in the rear-view mirror yet,” Childs said.
Childs says if we start to see the core rate of inflation creep down, there’s a good chance we’ll see a pause. But he also says if we continue to see low employment rates and vacancies in job openings, inflationary pressure will stay.
