Sept.19, 2007
The rate of rise in the consumer price index fell in August from 2.2 % to 1.7% once again demonstrating as I have been arguing that there is no inflation problem in Canada at present. Hence there is absolutely no justification for the Bank of Canada to raise interest rates. After yesterday' s Fed decision to cut them by 50 basis points there is in fact a necessity for the Bank of Canada to lower its own overnight rate by as much. If it does not it risks a parity plus dollar with further disinflationary and potentially deflationary consequences.
Even if we rely on the Bank's peculiar notion of inflationary expectations it is clear that when the current rate of price inflation is less by half a percentage point than last month and the overall rate is less than 2 % there are no inflationary expectations. In fact once the public understands what is happening in the global and therefore Canadian economy (since we have signed onto globalization some time ago) expectations ,to the extent one can actually guage them in practice as distinct from theory, are clearly disinflationary.
In other words put simply the general public expects prices to fall across the board in terms of housing,autos, clothing, electronic goods, services and other manufactured goods.
The only plausible exceptions would be the petroleum products industries and government taxes both of which are cartels or quasi cartels against which monetary policy is essentially powerless.
No comments:
Post a Comment