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Ted Rechtshaffen: No need to rely on high rates, job losses, forcing people to stop spending to make mortgage payments<\/p>\n
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Published Jan 24, 2024<\/span> \u00a0\u2022\u00a0 Last updated 1\u00a0hour ago<\/span> \u00a0\u2022\u00a0 5 minute read<\/span><\/p>\n<\/p><\/div>\n<\/div>\n<\/source><\/source><\/source><\/source><\/source><\/picture>A cow leaves a milking parlour on a farm in Quebec. Getting the price of expensive Canadian milk down would help tackle inflation.<\/span> Photo by Christinne Muschi\/Bloomberg<\/span><\/figcaption><\/figure>\n<\/div>\n<\/header>\n\nArticle content<\/h2>\n Inflation is the great evil of an economy, according to the Bank of Canada. It is so important to get our inflation rate to two per cent that it will use the tool of raising interest rates significantly to get there. Yes, it may cost hundreds of thousands of people their jobs, but it will be worth it. Yes, it may cost Canadians billions of extra dollars on their mortgages, but it will be worth it. Inflation is just that insidious, so it must be tamed even if it comes at tremendous costs to large swaths of the population.<\/p>\n<\/section>\n
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Let\u2019s take the above argument as given. Inflation is so bad that we need to swallow our medicine to get it under control. However, if taming inflation is the goal, there are several other ways to get us there. The question is: Why are we OK with massive job loss and massive mortgage hikes, but not OK taking advantage of these five steps?<\/p>\n<\/section>\n\nArticle content<\/p>\n
Step No. 1: Lower mortgage interest costs<\/h2>\n The consumer price index was 3.4 per cent in December. As a component of CPI, mortgage interest costs were up 28.5 per cent year over year. Without the mortgage interest cost increase, the CPI over the second half of 2023 would have been in the two per cent to 2.5 per cent range.<\/p>\n
The simple solution here is to lower mortgage costs and you will lower inflation. How do you lower mortgage costs? In large part, you lower the Bank of Canada overnight interest rate.<\/p>\n
I understand that moving one dial can impact other prices, but it is pretty hard to ignore a component of the CPI that went up 28.5 per cent as the biggest nail that needs to be hammered back into place. It also happens to be the one inflation component the Bank of Canada has more control of than any other.<\/p>\n<\/section>\n