Commentary The rate of inflation, as measured by the Consumer Price Index (CPI), increased substantially in all developed countries in 2021 including Canada, where it rose 3.4 percent compared to an average annual increase of 1.88 percent from 2000 to 2020. After public statements that inflation was transitory and primarily due to COVID-related supply chain disruptions, the Bank of Canada recently signalled that interest rate increases are on the way and that it will begin to reduce its holdings of government bonds, which will add to monetary tightening. The central bank now apparently believes that the current inflation problem also reflects increased consumer spending. And monetary tightening (again, which includes interest rate hikes) is meant to discourage aggregate demand for goods and services (including housing) by raising the cost of loans and mortgages. Still, some economists and business analysts worry about central banks acting “too aggressively,” which could, among other …
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