Ahead of another sharp interest rate hike expected later this week, NDP Leader Jagmeet Singh wonders if the current list of inflation-fighting prescriptions has become unnecessarily punitive for average Canadians.
In a letter to Prime Minister Justin Trudeau and shared with the Star, Singh pleads for the Bank of Canada to rein in its aggressive approach to rate hikes, while maintaining that the institution is and should be independent. He also writes that the government can do more to help Canadians weather the current inflationary storm.
During CTV’s Question Period on Sunday, however, Singh went further, taking direct aim at the central bank.
“There’s absolutely no merit to their approach,” Singh said.
The Bank of Canada will announce its next rate decision on Wednesday, having raised rates a full 3 percentage points since March, making it one of the most hawkish in the Western world to use the hikes as a strategy to stem the tide. inflation. Traditional economic thinking holds that making it harder to borrow and therefore to spend money will quell the problem of too much money for too few goods, causing an inflationary spiral.
Economists now expect a second straight rise of 0.75 percentage points from the Bank after September’s consumer price index rose 6.9% year-on-year the other, a slowdown but a slightly worse than expected annual inflation rate. This would put the target overnight lending rate at 4%, which has not been the case since the 2008 financial crisis.
“Food prices continue to soar, while gasoline prices have tamed but remain elevated,” Benjamin Reitzes, managing director of Canadian rates and macro strategist at Bank of Montreal, wrote in an update. day Friday.
These “stickier” numbers “suggest that breaking inflation could be harder than expected,” Reitzes said, forecasting a 0.75 percentage point rise. “The latest inflation figures should leave no room for softening [the Bank’s] warmongering rhetoric.
In his letter, Singh points out that workers’ wages have not kept up with persistent increases in commodity prices. Meanwhile, the causes of many of these increases – including the war in Ukraine, supply chain entanglements and “price hikes fueled by corporate greed” – are beyond the control of Canadians.
In Question Period, Singh criticized the Bank of Canada more outspokenly, saying there was “no evidence” of their approach.
“We absolutely have to fight against inflation. But if the Bank of Canada’s approach has nothing to do with the root causes of inflation and will only hurt Canadians, then we have to ask ourselves why is this the approach they adopt?
Telling Trudeau that “your government also has a responsibility,” Singh’s letter calls for removing the GST from home heating bills and mental health counseling, reforming employment insurance and making it easier to punish companies for the price fixing.
Other economists support the Bank of Canada’s approach of prioritizing pain to avoid worse evils in the future.
In an update Friday, Derek Holt, vice president and head of capital markets economics at Scotiabank, also predicted a rate hike of 0.75 percentage points, writing that “rate hikes slow and steady” would “probably take too long and risk falling even further behind”. Summoning as much damage in as short a period of time as possible is the essence of the bloated, front-end experience in order to prevent this next stage of transmission effects from taking hold.
Addressing a Senate committee last Thursday, former Bank of Canada Governor Mark Carney endorsed the Liberal government’s “fiscal discipline” – in other words, its avoidance of policies that would drain money from Canadians and undermine the central bank’s attempts to slow spending. Carney also described a recession in Canada as “likely.”
Not all economists agree. In a report released this month titled “A cure worse than the disease? Jim Stanford, an economist and director of the Center for Future Work in Vancouver, described the Bank’s rate hikes as a “crusade”, arguing for a pause to assess the effects of the increases so far – and an attempt to avoid a damaging recession.
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