Roundup: 100 basis points, because the Bank of Canada is serious

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It’s day one-hundred-and-forty-one of Russia’s invasion of Ukraine, and with Russian forces trying to turn the entire Donbas region to ashes with continued shelling, Ukrainian forces have been trying to reclaim some ground in the south, hitting another ammunition depot in Nova Kakhovka. Russian missiles struck the southern cities of Mykolaiv and Zaporizhzhia, as a show of their determination to hang onto their gains in the south.

Closer to home, the Bank of Canada raised their key overnight rate by 100 basis points, so that interest rates are now sitting at 2.5 percent, which is in the middle of their estimated “neutral” range of two and three percent. This means that the rate is not supposed to be either stimulative or contractionary. The hike was so high in large part because of the shock value—the Bank wants to break any psychological expectation that can lead to an inflationary spiral, where people keep expecting inflation to keep rising, and behave in ways that reinforce it. This goes for wages as well, and the Bank is trying hard to send signals that will hopefully keep a wage spiral from happening, where wages rise to meet inflation, which just increases demand and stokes inflation, and the cycle becomes self-reinforcing. The Monetary Policy Report also included an interesting section where the Bank examined why their previous estimates went wrong, and while they didn’t conclude that it’s because they don’t have a division of precognitive psychics guiding policy, they did find that a lot of the global shocks didn’t factor into their calculations. One such example was oil prices—their modelling used oil prices as being stable, but when they jumped, that threw off their modelling. And the invasion of Ukraine really did a number on everyone’s models, so the Bank of Canada wasn’t unique there.

When it comes to political reaction, both the Conservatives and the NDP sent out press releases freaking out. The Conservatives blame government spending for inflation, instead of its actual causes, and freak out that the cure is high interest rates, as though one can have it both ways in perpetuity. (This is the alleged “party of sound economic management,” who continually prove they are fiscally illiterate). The NDP think the cause of inflation is price gouging, instead of the actual causes (which isn’t to say that there hasn’t been some, but it’s not the cause), and therefore interest rates going up punishes people. Which is also missing the point. And it would be nice if we had opposition parties that were economically literate and capable of challenging the government on its bullshit rather than on largely imaginary problems.

https://twitter.com/mattgurney/status/1547403312378650627

Good reads:

  • Justin Trudeau was in Kingston, Ontario, to announce a deal to build a new electric vehicle battery plant in the region.
  • Trudeau also said that wants to ensure that future healthcare increases are actually getting tangible results, and not just padding provinces’ bottom lines.
  • As well, Trudeau said that returning those gas turbines to Germany is a way of trying to defuse Russia’s attempt to weaponise energy.
  • With Ontario now allowing fourth doses for the general public, here’s a look at the eligibility of those doses around the country.
  • Steven Guilbeault’s plans for a cross-country climate tour by train has been derailed by a lack of available service (which does prove a point, if you think about it).
  • The Canadian Forces will be creating a Canadian Space Division in the coming weeks, which is just about putting existing capabilities under a new letterhead.
  • New census data was released on pandemic benefits reducing income inequality, household formation, common-law couples, and the make-up of the military.
  • A former Conservative staffer has been charged regarding the theft of Erin O’Toole’s Zoom data during the previous leadership contest.
  • Doug Ford gave a self-serving interview to the Star where he patted himself on the back for how he ran the last election, and it was about as insightful as it sounds.
  • Kevin Carmichael walks through the Bank of Canada rate hike decision and both the thinking behind it and some of the immediate effects, including on the dollar.

Odds and ends:

https://twitter.com/EmmMacfarlane/status/1547219327686000641

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