The Bank of Canada surprised most analysts this week when it decided to cut rates by 25 basis points. The move comes after the price of oil has tumbled below $50 / barrel, oil producers announced huge cuts to business investment for 2015, Target announced a mass layoff of 17,600 workers in Canada, and the International Monetary Fund warned of a global economic slowdown.
The key message of the January Monetary Policy is that the Canadian economy needs stimulus. The Bank’s view of the Canadian economy stands in sharp contrast to that of the federal government, which is intent on (Read more…)
Today, Statistics Canada reported an annual inflation rate of 1.3% for July. By comparison, it reports that the average hourly wage rose by 1.8% between July 2012 and July 2013.
In other words, even anemic inflation is eating up nearly three-quarters of wage increases. On average, Canadian workers have eked out only a 0.5% improvement in purchasing power over the past year.
Low inflation and the weak job market both argue for the Bank of Canada to keep interest rates low. The rationale to hike interest rates would be to quell inflation, which is already under control (Read more…)
1. He’s Number Two: Stephen Poloz was widely acknowledged in economic and political circles as the second-best choice for the top job at the Bank of Canada. So the surprise was not that he was chosen. The surprise was, Why Not Tiff Macklem? Will someone please find out and tell the rest of us?
2. Doctrinaire [or not?] on Inflation Targeting: He thinks it’s “sacrosanct.” Having studied with monetary policy guru David Laidler at the University of Western Ontario, and been part of the Bank of Canada team that brought inflation targeting to a neighbourhood near (Read more…)
Mark Carney’s tenure as Governor of the Bank of Canada overlaps some challenging economy history. Appointed in early 2008 just as the US housing bubble was popping, Carney took the helm in time for a financial crisis that brought the global economy to its knees. We are still living that history in terms of a [...] . . . → Read More: The Progressive Economics Forum: Mark Carney’s tenure and the state of monetary policy
The Ontario government Fall Economic Statement and Fiscal Review ignores and hides billions savings the province will gain from lower borrowing rates in coming years.
While this statement acknowledges that borrowing rates will be considerably lower in coming years–and more than 100 basis points lower in 2014–their forecast of debt interest costs (on page 85) is identical to what Ontario’s 2012 budget reported (on page 167). This makes little to no sense, particularly with the province’s debt also lower than they had anticipated in the budget.
The only possible explanation would be a very large shift in composition from
. . . → Read More: The Progressive Economics Forum: Ontario hiding savings from lower interest rates
Canadians are now more indebted than either Americans or the Brits at the peak of their housing bubble. Statistics Canada today revised the national accounts. The result on the household debt front was that instead of Canadian households having a debt to disposable income ratio of 154, it has now been revised upwards to 166.
The new data allows better disaggregation of non-profits and households that were previously lumped together. The lower debt ratios of non-profits were making the entire sector look like it had less debt. Now that households can be pulled out and examined
. . . → Read More: The Progressive Economics Forum: Household debt going from bad to worse
Canada’s business press has recently been filled with speculation that the Bank of Canada may soon hike interest rates based on its somewhat more optimistic economic outlook. But today’s Consumer Price Index report indicates that there is no need to raise interest rates. Statistics Canada reported that both headline and core inflation fell to 1.9% in March, slightly below the central bank’s 2% target.
Higher interest rates are not warranted to combat already low inflation, but could derail Canada’s fragile economic recovery by increasing borrowing costs and driving up the overvalued loonie. The latest OECD data on purchasing power
. . . → Read More: The Progressive Economics Forum: Deflating the Monetary Hawks
Statistics Canada reported today that consumer prices jumped in January (by 0.4% or 0.5% seasonally-adjusted), offsetting the drop in December. As a result, the annual inflation rate is now 2.5% and the Bank of Canada’s core inflation rate is 2.1%.
Both measures are well within the central bank’s target range, which should allow it to keep interest rates low and perhaps reduce them further if unemployment continues to rise. Since the last inflation report, the US Federal Reserve has pledged to keep its target rate near zero through 2014, providing a further argument for
. . . → Read More: The Progressive Economics Forum: Inflation and Drummond