Canadian inflation falls to 1.9 % below the 2 % target rate of the Bank of Canada: raising interest rates would be a big mistake

Statistics Canada has announced that the inflation rate for March fell to 1.9 %. This is exactly opposite to what a number of conventional economists including those who hold influential positions at the Bank thought would be the case. The Bank of Canada Governor recently made aggressive noises in the direction of raising interest rates in future interest rate settings on account of what now turns out to be very mythical inflationary pressure. The fact is the Canadian economy is slowing down and the pace of recovery while still positive shows absolutely no sign of provoking inflation. Whatever inflationary pressures exist lie in the oil sector and to a certain extent in foodstuffs that are speculated on in the futures markets. In neither of these cases would raising interest rates be a sensible policy response.

Chart 2: The 12-month change in the CPI and the CPI excluding food and energy

Both charts courtesy of Statistics Canada

Chart 3: Slower increases in six of the eight major components


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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