A Closer Look

Inflation and Bank of Canada – No “soft landing” history tells us

History tells us that the Bank of Canada has a 0% success rate in fighting inflation by quickly raising interest rates. If a pilot told me that they’d only ever attempted a particular landing three times in the past 60 years with a 0% success rate, that’s not a plane I’d want to be on. Unfortunately, that looks likes the plane all Canadians are on now.

Fast Facts:

  • The Bank of Canada is pursuing a strategy to tackle inflation by raising interest rates to bring inflation down by 5.7% points (from the May CPI figure of 7.7% to its target of 2%).

History tells us this never results in a “soft landing”:

  • In modern Canadian history, going back to 1961, there have already been three periods in which the CPI has fallen by at least 5.7 percentage points: 1974-76, 1981-83 and 1991-92.
  • In every single instance of CPI reductions of this magnitude in the past 60 years, it was always accompanied by a recession.
  • Even if the Bank of Canada expanded its inflation target to 4%, history tells us that the success rate of a soft landing would be 33%; i.e., two out of six episodes got us to target without a recession.

Chosen excerpts by Job Market Monitor. Read the whole story @  Canada’s fight against inflation: Bank of Canada could… | The Monitor


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