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Is the Canadian inflation rate really back at 2.8% ? (lemmy.ca)

submitted 1 year ago by kiwiheretic@lemmy.ca to c/canadapolitics@lemmy.ca

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As a foreigner who follows the Canadian news I saw on https://www.ctvnews.ca/business/economists-expect-rise-in-inflation-as-price-growth-fight-enters-new-phase-1.6517322 that the Canadian inflation rate is 2.8% which surprised me as in our country it is around 7%.

If so then how did Trudeau do it? How did he soak up all the money he printed during Covid?

Does that mean that housing and cost of living pressure has also been eased?

Would like to know your thoughts.

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[–] EhForumUser@lemmy.ca 1 points 1 year ago* (last edited 1 year ago)

It is likely they will.

Debt becomes more attractive when inflation is high. If, hypothetically, $1 yesterday is worth 80¢ today (inflation), then you just saved having to pay back 20¢ on every dollar of the principal. That is one hell of a steal! As such, rates rise to compensate. If higher interest rates now require you to pay 20¢ more for every dollar then that debt is not so attractive again. This keeps the supply and demand in equilibrium.

But since higher rates are specifically what is driving inflation (we are in the target range if you exclude mortgage interest costs), the higher the rates, the higher inflation goes. With that, the equilibrium is struggling to be found.

And this is what we call an inflationary spiral.