Inflation boom causing banks to consider raising interest rates

[mentalfloss]

Canada Inflation Exceeds All Forecasts on Gas and Clothes

Canada’s inflation rate accelerated faster than economists predicted in October, led by gasoline and clothing and suggesting the economy may be running hotter than the central bank had thought.

The consumer price index rose 2.4 percent compared with the same month a year earlier, Statistics Canada said from Ottawa. That’s faster than all 21 economists in a Bloomberg News survey predicted. The core rate that excludes eight volatile products accelerated to 2.3 percent, the strongest in almost three years.

Inflation has exceeded the Bank of Canada’s 2 percent target in five of the past six months, making it more difficult for Governor Stephen Poloz to argue temporary factors are driving price gains. Canada’s dollar rose the most in almost two months after today’s report as traders speculated the central bank may have to bring forward its timetable for raising borrowing costs.

“It’s getting to a situation to where the Bank should be contemplating taking rates higher,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. Higher interest rates slow inflation by reducing the amount of money in circulation.

Bank of Montreal Senior Economist Robert Kavcic said in a report today inflation momentum has “broadened” from a year ago, with 56 percent of the index’s 18 major price categories exceeding a 2 percent annual pace.

Lending Rate
The inflation report adds to evidence there may be less room for companies to expand without raising prices. Canada’s jobless rate dropped to the lowest in six years in October. Statistics Canada revisions on Nov. 5 showed the country’s economy grew more in the first half of this year than the agency previously reported.

Canada Inflation Exceeds All Forecasts on Gas and Clothes - Bloomberg

 

[Machjo]

Raise taxes and/or reduce government spending. You kill three birds with one stone by reducing the debt, controlling inflation, and controlling interest rates. Problem solved.

 

[Nuggler]

Price of gas has been dropping. Likewise oil.
Banks usually create their own reasons for raising interest rates.


?

 

[mentalfloss]

Raise taxes and/or reduce government spending. You kill three birds with one stone by reducing the debt, controlling inflation, and controlling interest rates. Problem solved.

Well you won't see #1 and we just announced a bucket load of benefits for rich families, so....

 

[IdRatherBeSkiing]

The situation is likely an indication of the economy starting to boom again. Key here is to minimize the increase because you don't want to slow the growth too much.

Raise taxes and/or reduce government spending. You kill three birds with one stone by reducing the debt, controlling inflation, and controlling interest rates. Problem solved.

For raising taxes to slow the economy one would have to believe that cutting taxes, like Mike Harris did for example, will stimulate the economy. We have been told repeatedly by the tougue wearing crowd that this is not the case and Mike Harris did not reverse Ontario out of that Lieberal/NDP recession of the early 90s. So raising taxes by the same logic will do nothing.

But yes, raising taxes would slow down the economy and thus control inflation. Trick is to pick an approach that does not throw people out of work too.

 

[Kreskin]

The exchange rate and increased cost of imported goods would play a role in this.

 

[captain morgan]

For raising taxes to slow the economy one would have to believe that cutting taxes, like Mike Harris did for example, will stimulate the economy. We have been told repeatedly by the tougue wearing crowd that this is not the case and Mike Harris did not reverse Ontario out of that Lieberal/NDP recession of the early 90s. So raising taxes by the same logic will do nothing.

But yes, raising taxes would slow down the economy and thus control inflation. Trick is to pick an approach that does not throw people out of work too.

Most provinces are pushing to accelerate their local economies, thus increasing taxes is not a smart game plan at this point and inflation is a simple reality of a growing economy.

As for the possible increase in the interest rate, that is strongly influenced by what other major nations do with theirs, the game being, attract more domestic and foreign investment to that nation.

Now that the US has ended their program of quantitative easing , their only move is to increase the interest rates.. Most nations will follow that lead.

 

[IdRatherBeSkiing]

The exchange rate and increased cost of imported goods would play a role in this.

No doubt. Of course, raising interest rates would raise the price of the loony on foreign markets (at least temporarily) and would also slow exports. Certainly not good news for Ontario which has likely enjoyed a bit of a recovery thanx to the lower dollar.

 

[petros]

Well you won't see #1 and we just announced a bucket load of benefits for rich families, so....

So get off you *** and get rich.

 

[tay]

My take on the inflation increase.


It is hurting consumers simply because (as pointed out) the majority increases are on food (Food prices rose 2.8 percent in October, including a 12.4 percent surge for meat purchased at stores.) and to a lesser extent clothing.


So how would raising interest rates correct this for the average consumer? It won't. I get it that raising interest rates supposedly makes the Loonie more attractive to the big investors, but it won't help the average person.......

 

[captain morgan]

My take on the inflation increase.


It is hurting consumers simply because (as pointed out) the majority increases are on food (Food prices rose 2.8 percent in October, including a 12.4 percent surge for meat purchased at stores.) and to a lesser extent clothing.


So how would raising interest rates correct this for the average consumer? It won't. I get it that raising interest rates supposedly makes the Loonie more attractive to the big investors, but it won't help the average person.......

Would you rather that prices remained static and the purchasing power of the loonie keep falling?

Deflation is far more threatening and expensive than inflation

 

[petros]

If ON didn't turn into another BC politically, this problem wouldn't be a problem, would it?

 

[captain morgan]

If ON didn't turn into another BC politically, this problem wouldn't be a problem, would it?

Both provinces have weak leadership that bend over backwards to not take the advice from their experts.

The p/l will go through or around her and any cost increases will be offset by outsourcing the work and materials to cheaper alternatives... Just like BC, they will reverse their position once the threat of less jobs and tax revenues is understood to be forthcoming.

 

[mentalfloss]

So get off you *** and get rich.

Sorry what does this have to do with me?

 

[petros]

Sorry what does this have to do with me?

Everything.

 

[Machjo]

Would you rather that prices remained static and the purchasing power of the loonie keep falling?

Deflation is far more threatening and expensive than inflation

They're both harmful, inflation more so since it also encourages people to borrow and spend before prices go up.

Add to that that if inflation were s tax, it would be a regressive one since the rich can hedge against it at least somewhat. The poor can't.

 

[Kreskin]

An income splitting tax credit of up to $2,000 is for the rich?

 

[petros]

An income splitting tax credit of up to $2,000 is for the rich?

Of course. Who else? Poor don't pay taxes.

 

[Retired_Can_Soldier]

Both provinces have weak leadership that bend over backwards to not take the advice from their experts.

The p/l will go through or around her and any cost increases will be offset by outsourcing the work and materials to cheaper alternatives... Just like BC, they will reverse their position once the threat of less jobs and tax revenues is understood to be forthcoming.

Can't say I agree. The Ontario Public are even more sheepish than the BCers. They took a number of new tax incentives like the HST right in the behind and hardly batted an eye.

 

[tay]

An income splitting tax credit of up to $2,000 is for the rich?

Why would they stop at a maximum $2,000 instead of allowing for the total max deductible is the question.......






Public servants were asked to use official government Twitter feeds to promote Prime Minister Stephen Harper’s recently announced tax measures, using the slogan “Strong Families.” A senior bureaucrat with the Department of Finance sent out a mass e-mail across government asking organizations to retweet messages about the announcement using the hashtag #StrongFamilies.


The proposal, which includes income splitting for families with children under 18, has not yet received parliamentary approval.


Both the NDP and the Liberals have been sharply critical of the income-splitting plan, which they say will benefit only 15 per cent of Canadian families.




Public servants asked to promote Conservative tax proposal on Twitter - The Globe and Mail




Here is a report on the plan........








http://www.broadbentinstitute.ca/sites/default/files/documents/thebigsplit-final.pdf