Some fear Bank of Canada Gov. Tiff Macklem is poised to raise rates again in July in a bid to drive inflation down to its target. ‘It’s two per cent or bust,’ says one economist.
What I don’t understand is that we are in unprecedented economic times. So maybe the tools that corrected hyper inflation many decades ago isn’t the answer here?
I think Singh has a better idea, start taxing excessive profits. Why does say Bell or Loblaws need billions in profits?
Unprecedented times? Hardly.
The annual inflation rate from 1971 to 1991 bounced between roughly 5% and 12%. It was only after BoC adopted the 2% target in the early 1990s that the inflation rate moderated.
My first car loan was through Chrysler, and 'discounted ’ to 11% from the 13% bank rate. That was for a Dodge Colt 200E. No AC, no cruise control, roll your own windows, no radio, no rear wiper, all for roughly $9500, almost $20K in today’s money.
Mortgages peaked just over 20% in 1981. My first mortgage was close to 6% in the 1990s.The “unprecedented” time was that period from roughly 1993 until prior to the pandemic of very low interest and inflation rates.
That’s fair, but it’s not the whole story. Fact is things were more affordable then, particularly for people in entry-level type jobs making near minimum wage. Look at things like median wage vs median cost of housing, and you see a very different storey, even with high interest rates.
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Food only makes up roughly 10% of a median household’s income ($68k, 2.9 people). Even if food inflation is running at 10%, it’s not a huge factor in affordability.
That median household income doesn’t go very far these days. It’s only manageable for many because they get support from family/friends or have a big chunk of unreported income that doesn’t meet the statistics. I’m looking at changing careers and the idea of our household income dropping to only a little above that median is scary as hell. An increase of 10% of 10% of one’s budget doesn’t sound crazy on its own, but when lots of other costs are going up too good might be one of the highest $ value changes compared to things like fuel or individual utility costs.
