I don't think they're making things worse, but as the article states, governments could be doing more. Incentivize purpose built rental units, provide better food security supports instead of parachuting money in.
this post was submitted on 15 Jul 2023
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I donβt think theyβre making things worse
Why's that? Take a look at the CPI data sometime. Inflation is within the 2% target range if you exclude mortgage interest costs. Inflation is high specifically because of high interest rates pushing people to spend more on mortgages. Is it that you don't think the BoC has any impact on interest rates?
yo, that's not how the policy work. The increase is to stop extra money pumping into market because if you try to borrow and do stuff, then the cost is higher, ANY borrowing. (so business, house, car, etc. )
ie. if you are selling apple using borrowed money because the revenue-cost is positive enough to do it, interest rate increase will help stop you buying more apple(for resale) down the road. "but I can just offset the cost to consumer that buys my apple, right?" Yes you could but for merchant that does not need to borrow money to do it they have an edge over you. So while short term you will see people jack up price of apple to cover their bottom line, eventually, there is a point they can't get price up anymore to cover cause people will switch to buy orange instead. So people will do less risky business that involves borrowing money. And consumer just pick whatever they can afford. So if there is a trend that apple is too expensive, it will stick and lag behind, it affects all the way to produce as well and some apple selling business will close, and farm would cut production if people are not buying, then if this goes on longer, they will have to lower the price to recoup the money compare to losing everything. And people that originally think borrowing money to invest in apple will think hard(if they have good advisor), thus not much money in this "apple" market. Interest rate increase affects almost all industry, but the price coming down, to historical trend of inflation, will lag behind and are not immediately visible.
That's also why too few competition in grocery is bad cause you have to eat, for business that people have no choice but had to buy/use to survive, they should be regulated. ( Just imagine if your provincial water supply is a public traded company. )
Keep in mind that they manipulate the CPI to make it look not so bad.
For example, if the price of a luxury item spikes by 50% (like a lot of grocery items did in the last year), they'll remove it from the basket and put in a cheaper alternative instead. The idea is that what people would do, but the result is a figure that doesn't represent actual price increases.
The main purpose of CPI is to see if Canadians can still make ends meet. It's not supposed to express price increases, but cost of living increases.
People change their habits as prices change. That's well-known.
So maybe it should be called the Buying Habits Index then.
We could call it the Cost of Not Dying if you prefer
Makes sense. Inflation is trying to determine the value of currency as you can't just ask how much a dollar is worth. Of course, a dollar is always worth a dollar! Which means nothing as we know a dollar today isn't worth the same as a dollar yesterday. Thus, CPI becomes the proxy.
If a luxury item becomes more valuable, then you're no longer measuring the change in value of the currency, you're measuring the change in value of that item. It can never be an exact science, but if one thing jumps by 50% when nothing else has, there is extreme confidence that it is not the change in value of the currency that resulted in the change in price and it stands to reason that you would want to eliminate it from the calculation.
It's not meant to measure inflation. It's supposed to measure the cost of consumer goods, but instead they say it's about "overall cost of living" to justify the manipulation.
Itβs supposed to measure the cost of consumer goods
Because consumables are what are frequently purchased to be able to observe inflation taking place.
It wouldn't make sense to track houses, for example. People only buy those once, maybe twice in their life. You would have no idea how their perception of the value of the dollar is changing watching that.
But it doesn't make sense to change the basket from having 7 portions of meat to having 3 portions of meat and 4 portions of tofu (example pulled out of my ass, but the principle is the same as what's being done). That's what people do because of inflation to reduce their spendings, it still means that the number reported has nothing to do with real inflation.
Real inflation/deflation is the variation of price of specific items over time. You could absolutely check inflation of housing by comparing the price of thousands of houses that respect some criterias over time without changing the criterias.
Worth noting that's only if you include gas prices which aren't really controlled by anything Canada can do. Exclude them and you're still above the target range.
That's what they do, that's who does it, and how they do it.
They Don't Think It Be Like It Is, But It Do.
Raising interest rates are how the government fights inflation.
Except the BoC is not affiliated with the federal government. The feds have no control over what the BoC decides.
BoC tried to limit the money out there, the feds start printing checks and sending them out to Canadians. Its a slow game of lose and lose for all Canadians, except the rich.
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