Bank of Canada Should Retire CPI-common
The Bank of Canada targets 2 percent annual increases in the Consumer Price Index (CPI). However, some of the CPI’s components are volatile, making it difficult to determine inflation’s underlying trend – critical in the proper setting of monetary policy. The Bank has created a series of core inflation measures as a result. One of […] Ambler, Kronick – How Fast to Move? Assessing the Bank’s Way Forward.
From: Steve Ambler and Jeremy M. Kronick To: Canadian Inflation Observers Date: September 20, 2022 Re: How Fast to Move? Assessing the Bank’s Way Forward. The Bank of Canada continued its tightening cycle this month with a 75-basis-point increase in its overnight rate target. That target is now above the top end of the Bank’s estimate of the “neutral […]How high should interest rates go and how fast? – Financial Post Op-Ed
The Bank of Canada continued its tightening cycle last week by announcing a 75-basis-point increase in its overnight rate target. That target is now above the top end of the Bank’s estimate of the “neutral rate” of two to three per cent. But how fast will the rate go from here?
The neutral rate is the rate the Bank thinks would be appropriate for an economy producing at full capacity, with inflation running at two percent. Most economists and market-watchers believe the overnight rate needs to go beyond neutral in order to fight inflation. Despite a one-month drop in the year-over-year increase in the CPI from 8.1 per cent in June to 7.6 per cent in July, inflation is a long way above the top end of the one-to-three per cent…
Koeppl, Kronick – Assessing the Impact of Unconventional Monetary Policy
To: Bank of Canada Governing Council From: Thorsten Koeppl and Jeremy M. Kronick Date: September 8, 2022 Re: Assessing the Impact of Unconventional Monetary Policy For much of the past two decades, interest rates have fallen in Canada (and elsewhere) but are now headed in the opposite direction. Where we land over the long haul is unclear. However, it […]C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Raise Overnight Rate to 3.25 Percent
September 1, 2022 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada raise its target for the overnight rate, its benchmark policy interest rate, by 75 basis points to 3.25 percent on September 7th, and maintain the current pace of reduction in its holdings of Government of Canada bonds.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council.
Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the subsequent announcement, and the announcements six months and one year ahead. The Council’s…
Lessons from the Yield Curve: Evaluating Monetary Policy in Different Interest Rate Environments
Bank of Canada Policy Must Adapt to Changing Interest Rate Environments The Bank of Canada needs to take into account prevailing interest rate environments and adjust its monetary policy tools accordingly, finds a new report from the C.D. Howe Institute. In “Lessons from the Yield Curve: Evaluating Monetary Policy in Different Interest Rate Environments,” authors […] Ambler, Kronick – The Strange Arithmetic of Headline Inflation
To: Canadians Concerned About Inflation From: Steve Ambler and Jeremy Kronick Date: August 30, 2022 Re: The Strange Arithmetic of Headline Inflation Canada’s inflation numbers for July gave those of us who analyze the outlook for prices plenty to think about. The headline inflation number, which measures the increase in prices over the last 12 […]Has the economy landed already? Depends which inflation numbers you look at – Financial Post Op-Ed
Last week’s inflation numbers for July gave those of us who analyze the outlook for prices plenty to think about. The headline inflation number, which measures the increase in prices over the last 12 months, clocked in at an unruly 7.6 per cent, while the month-to-month inflation figure came in at a much better-behaved 0.13 per cent, which works out to an annualized 1.6 per cent, which is below the Bank of Canada’s two per cent target.
The June-to-July change was mostly driven by a fall in energy prices, which may or may not be repeated and could easily be reversed if the Russo-Ukraine war or other international conditions worsen. People understand that energy prices go up and down. But the July result does underscore the…
Devlin, Forssell – Quantitative Tightening May Cause Unexpected Trouble
To: Bank of Canada Governing Council From: Ed Devlin and Anders Forssell Date: August 22, 2022 Re: Quantitative Tightening May Cause Unexpected Trouble After bridging the unprecedented pandemic lockdown, we now have inflation the likes of which we haven’t seen in 40 years. In response, the Bank of Canada (BoC) has hiked the overnight rate […] Ed Devlin on BNN – The hidden sting in removing stimulus: A tide of new debt
Ed Devlin, Senior Fellow at the C.D. Howe Institute and founder of Devlin Capital, joined BNN Bloomberg and discussed the Bank of Canada being in uncharted territory as it implements quantitative tightening – the shrinking of its balance sheet – while also tightening interest rates. He advised the Bank to be flexible if a flood of new government bonds ends up swamping Canada’s illiquid market.
William B.P. Robson – Inflection Points for Inflation and the Economy
From: William B.P. Robson To: Canadians Concerned about Inflation and Recession Date: July 28, 2022 Re: Inflection Points for Inflation and the Economy Two economic headlines a week apart – the Bank of Canada’s 1 percent hike in the overnight rate and last Wednesday’s 8.1 percent year-over-year Consumer Price Index increase – make clear that we are at a major turning point. […] We are at a major turning point in the fight against inflation – Globe and Mail Op-Ed
Two economic headlines a week apart – the Bank of Canada’s 1 per cent hike in the overnight rate last week, and the 8.1 per cent year-over-year increase in the Consumer Price Index Wednesday – make clear that we are at a major turning point. The Bank has underlined its determination to get inflation, which it admits it underestimated, back to its 2-per-cent target. Canadians can look forward to lower inflation, and also need to be ready for the recession that will precede it.
Although the Bank’s hike was larger than most forecasters expected, the June CPI report validated the big move. Canadians too young to have experienced inflation like this before are discovering what older Canadians already knew…