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EDITORIAL: Controlling inflation a difficult challenge

The present efforts to slow the rate of inflation are not painless
New research paints a sombre outlook for Canadian household finances as inflation takes a bite out of real wages and rising interest rates mute economic growth. THE CANADIAN PRESS/Graeme Roy

In an effort to curb inflation, the Bank of Canada has raised its key interest rate by a full percentage point.

The increase – the highest single rate hike since August 1988 – follows an increase of half a percentage point in June, also in an effort to curb inflation.

Rising inflation is a concern in Canada and around the world. In May, inflation reached 7.7 per cent, the highest figure in 39 years.

This is significantly higher than the Bank of Canada’s target rate of two per cent.

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The recent rise in inflation rates is affecting consumers as the prices on store shelves and at the gas pump are noticeably higher than they were a few months ago. For some individuals and families living on tight budgets, even a small increase in prices will be uncomfortable.

At the same time, increasing interest rates to slow inflation will also have noticeable effects, especially for homeowners with mortgages and those who are looking to sell their homes.

Anyone renegotiating a mortgage now will be affected by rising interest rates, as these rates are a factor in mortgage payments. In addition, when interest rates rise, housing prices tend to drop, affecting those who are trying to sell their homes.

In short, the present efforts to slow the rate of inflation are not painless.

Before pointing a finger at the federal government or the Bank of Canada, it is important to recognize that global factors, especially the war in Ukraine, are playing significant roles in the present economic conditions. In a global economy, conditions in other parts of the world will have an effect on us here.

In addition, other G7 countries are facing higher inflation rates. In the United Kingdom, the inflation rate in May was 9.1 per cent. In the United States, Canada’s largest trading partner, inflation reached 8.6 per cent. Around the world, interest rates have been increasing since March 2020 as a result of inflationary pressures resulting from the war in Ukraine.

The Bank of Canada has been making some difficult decisions in an effort to slow the rate of inflation in this country, but some of the factors affecting inflation are the result of war far from us. As long as this war continues, economic uncertainty will remain.

– Black Press

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