Op-Eds

What triggered the sharp rise in Canadian inflation in spring 2021 is still a matter of debate. And it’s a debate that matters: the relative importance of the pandemic’s disruption of supply chains, Russia’s invasion of Ukraine, “greed,” or central banks’ financing of a surge in government spending will affect our response to future events. But once inflation gets started the initial causes are less important than the process that sustains it, which is a combination, on the one hand, of rising inflation expectations and costs and, on the other, of inadequate production.

When inflation has been low and stable — say two per cent — for some time then everyone knows that everyone knows that inflation will be about two per…

Last week, the Bank of Canada held its overnight rate, its benchmark policy rate, at 4.5 per cent. No surprises there. In its last announcement, the bank told us the data were consistent with their view that, with the target rate where it is, inflation would come back down to three per cent by the middle of this year. Data since have not changed governing council’s view that at present more tightening wasn’t necessary.

In fact, if anything, the major economic development over the last six weeks, the failures of Silicon Valley Bank (SVB) and Signature Bank, as well as the emergency takeover of Credit Suisse by UBS Group AG, made caution even more prudent. Furthermore, it might actually make the…

At its last interest rate setting on March 8, the Bank of Canada paused its months-long hiking campaign and left unchanged its target for the overnight interest rate at 4.5 per cent. Being on the fence can be uncomfortable in the current inflationary environment – but for the latest rate setting on Wednesday, the bank was right to remain there.

Perching on the fence is uncomfortable for many reasons. First is the long lag time between setting interest rates and seeing the result. It can take 18 months or more for changes in interest rates to affect economic activity and then inflation. The bank’s rate hikes over the past year are moving inflation in the right direction. The year-over-year rate of…

The Bank of Canada met market expectations last week by raising its policy rate by 25 basis points, to 4.5 per cent. The bank also changed its tone from hesitant caution to guarded optimism. Its message: Hikes might just be over.

In December, the bank made clear that any further tightening would depend on the data. This time, it stressed that if inflation declines in key sectors to the extent it forecast in its latest Monetary Policy Report, it will hold the policy rate steady and pause to assess the impact of its cumulative rate hikes. A terminal peak of 4.5 per cent would also be in line with the most recent C.D. Howe Institute Monetary Policy Council announcement.

We expect — as most Canadians…

Since starting its fight against inflation last March the Bank of Canada has been focused on little else. That is in stark contrast with many of the country’s finance ministers, who have raised spending and increased government hiring. Coordination between our monetary and fiscal authorities would make the Bank’s job a lot easier. Failing that, however, the Bank should continue do what is necessary to get inflation back to target.

The onset of the pandemic saw unprecedented coordination between fiscal and monetary authorities around the globe, including in this country. The Bank of Canada lowered its policy rate to its effective lower bound (0.25 per cent) and then turned to less conventional monetary…