If the Tiffster screwed up it was in suggesting rates would stay low for a while, which people took to mean ‘forever’. Rates have been going up over the course of a year. So CBs have been unwinding it all in a methodical way to temper the post-viral surge, yet avoid shocking the system. Governments everywhere used loose fiscal policy to rain cash down upon the citizenry and compensate for lockdowns. Energy prices spiked, especially when Putin went rogue. Supply chains came undone because of Covid. The upside was economic activity that helped us survive a pandemic. The downside was an orgy of mortgage borrowing breeding crazier house prices. The Bank of Canada benchmark fell to a quarter of one percent. CBs in Canada, the US, Europe and beyond dropped rates, bought bods and flooded the system with liquidity to prevent a 2009-style credit crisis. If it lasted, we’d taste depression, with 30% jobless. When Covid hit, the global economy sputtered to a halt and Canada sank into instant recession with 14% unemployment. And the Bank of Canada governor has allowed himself to become the ATM machine of this government.”Įconomists say this is crazy talk. Said Poilievre: “Money-printing government deficits have caused more dollars chasing fewer goods, driving higher prices. Along the way he advocated that Canadians embrace Bitcoin as a tonic to inflation. He accused Macklem, a civil servant heading an independent agency, of recklessly printing billions so Justin Trudeau could squander them. The Conservative leader said he would essentially take over and politicize the Bank of Canada. No, we’re not going back to 0.25%, but things might get a half-point cheaper. If the rate of inflation does in fact dip back to 3% (or close enough), there could be a rate cut coming about one year from now. In fact the country’s largest bank, RBC, is forecasting the Bank of Canada rate pause is now going to last until the end of 2023. But given the improvement in inflation data today, the BoC will not feel rushed to jump back in with another rate hike just yet.” The recent uptick in employment and spending data complicate this. Over at TD, the economists put it this way: “A slowing in economic momentum will be needed for inflation to decisively fall back towards the 1% to 3% target range. “Even the short-term metrics on core inflation are getting into a much more manageable zone, which should soon trim the annual rates from their 5% perch.” “Today’s CPI represents a rare downside surprise in both headline and core inflation, clearly a big step in the right direction,” says BMO Economics. How can this Tiff-the-evil meme continue to have legs? If conditions continue, it’s what we can expect. Even the real estate market has chilled, but not capitulated. The economy is cooling enough to trim the rate of inflation without crashing employment or business investment. The 425 beeps of interest rate increases Macklem ushered in since last March are doing the job. So this month Canadian rates will stay unchanged. Lots of new jobs there, too, with the Fed sounding hawkish. In the US core inflation is still strong and last week the PPI (producer price index) showed more pressure coming. Second, we’re doing better than the Yanks, for once. Wages have been rising for months on end, along with retail sales and the household savings rate. Our unemployment rate is the lowest in half a century, clearly showing business confidence as hiring ramps up. The labour market has been on fire, with ten times the job creation lately that anyone expected. The number is impressive for a few reasons. Macklem says we’ll have a 3-something rate by later this year. Down was energy, a bunch of services, cars. Up were food (a lot, like 12%) plus mortgage interest (the greatest surge since 1982 – 21%). So what had an 8-handle a few months ago now has one in the 5s. Now at 5.9% (annualized, January) it just sank below economists’ expectations and was a healthy plop from December. Here’s the news, then what it means: the rate of inflation is declining. These days everyone needs someone to blame. He’s the current favoured straw man for people who can’t afford houses – plus politicians who want power – to beat on. Poor Tiff Macklem, the dude running our CB, has been sliced, diced and eviscerated on this blog and in the political circus. It’s a dangerous thing when people stray out of their lane.
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