Last week`s speculations by Bank of Canada Governor David Dodge that the Bank was considering lowering the inflation target to 1 % is a trial balloon that ought be burst as soon as possible.
If the Bank were to do this within a short matter of time interest rates would rise further and the Canadian dollar would float back up toward the unsustainable 90 cent barrier. Manufacturing in Ontario and Quebec would be further hurt and the unemployment numbers would worsen. And for what? The only sign of inflation continues to show up at the gas pump and here it is the oil cartel that is responsible. Raising interest rates does absolutely nothing to weaken the power of the cartel except in the most damaging way by inflicting reductions in fuel consumption by increasing unemployment. A crude, indirect and very costly approach. A much better idea is to bring more Alberta oil on stream. Along side increased production elsewhere in North America and greater efforts at ecological use including the promotion of public transportation infrastructure through a long term bond financed loan fund that targets the development of such infrastructure and finances it with low interest rates the results would be much more positive . Instead of choking off growth, the production of jobs and prosperity, this approach would promote employment and sustainable growth.
Lowering the target for inflation toward John Crow`s disasterous policy of 0 % inflation is a very bad idea indeed.
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