Opinion: Do not believe for a minute that a recession is needed to curb today’s inflation. Rather, the government should think outside the box and implement policies that attack the domestic sources of inflation—something the Bank of Canada cannot do.
In its crusade against inflation, last month the U.S. Federal Reserve topped the Bank of Canada and raised the policy rate by three quarters of a percentage point — its highest hike in 28 years.
But the fact that higher rates of interest may have a negligible impact on average prices is not a concern for the Bank of Canada, since reducing price-increases is not the intended outcome of lowering demand. The underlying intention is to increase unemployment — that is, to cause an economic recession — to prevent workers from demanding a wage hike similar to the price-increase that already took place. In other words, the intention is to avoid a wage-price spiral ...
Indeed, to justify interest rate increases, Canadians are told time and again that the labour market is getting too tight and wage increases may become a source of inflation. So far, however, this has not been the case: on a year-over-year basis, prices increased by 7.7 per cent while wages rose by only 3.9 per cent in May. And in June, although average hourly wages rose faster at 5.2 per cent, the rate was still significantly lower than inflation.
Do average Canadians really want the central bank to prevent real wage-increases to preserve corporations’ profit margins?
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