There’s an argument circulating in financial circles that our high inflation rate is actually a choice made by the central bank and they have the option to choose to make it better.
This premise is the basis of a report by the economics team at TD Bank. They say the Bank of Canada’s reliance on higher interest rates to fight inflation contradicts itself because when we measure inflation, the yardstick relies heavily on the cost of rent or home ownership.
And when they raise interest rates to fight inflation, they compound the problem by making shelter costs higher. Other countries, they note, either ignore this item or give it less weight in their inflation measures.
Borrowing costs – which affect both landlords and home owners – are rising at more than six per cent. And they account for as much as 30 per cent of the Consumer Price index. So, as long as the central bank uses interest rates to fight inflation, higher borrowing costs will simply add to inflation, ensuring it hangs around longer.
