On December 7, the Bank of Canada increased its policy interest rate for the seventh time since March, by another super-sized increment of 50 basis points (0.50%). The rate is now set at 4.25%. The Bank of Canada has been among the most aggressive of any OECD central bank in lifting interest rates to slow economic activity.
Centre for Future Work Director Jim Stanford was interviewed about the Bank’s decision in numerous media outlets.
In this segment on CBC News Network, anchor Andrew Nichols asked about alternatives to higher interest rates for controlling inflation:
Another CBC story, by Stephanie Hogan, provided a roundup of differing views (including Jim’s) on the efficacy of higher interest rates in combatting inflation.
The latest rate hike comes on the heels of Statistics Canada’s latest report on the state of Canada’s economy. This report showed that the domestic economy (excluding foreign trade interactions) is already contracting. In this detailed review of the third quarter results, Jim Stanford highlighted numerous signs of emerging economic weakness: including rapidly accumulating inventories, falling consumer spending, and falling real household incomes.
The data, along with a weak Statistics Canada employment report for November, indicate that the Bank of Canada’s claim that Canada suffers from “excess demand” (arising from an “overheated” labour market and rising wages) is inconsistent with evidence of falling real wages and contracting domestic spending. The imposition of continued monetary tightening despite signals of economic weakness suggests 2023 will be a very rocky one for Canada’s economy.