THE COST OF CONTROLLING INFLATION
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nflation is likely to be brought back to within the Bank of Canada’s target range of 1 to 3 per cent in a couple of years, but the cost of getting there could be high if the Bank’s actions in the interim trigger a recession, CIBC managing director and deputy chief economist Benjamin Tal told a recent Industry Forecast event organized by CMBA-BC. While many Canadians are concerned about the impact of rising inflation, Tal worries that the Bank of Canada may trigger a recession by overshooting and raising the policy interest rate beyond 3 or 3.5 per cent. He notes the Bank monitors inflation expectations and will act accordingly until it is convinced that the public believes inflation is not out of control and will be brought down. Tal said several forces are contributing to current inflation levels, with some being less sensitive to a rise in the policy interest rate. For example, he said the global supply chain disruptions experienced through the pandemic are inflationary but should ease as consumers shift their demand for goods to services as part of the transition from a pandemic to an endemic with less restrictions. The shift from goods to services will be deflationary as services are less sensitive to supply chain disruptions, he added. Tal said energy was another inflationary force partly due to the current “energy shock” marked by significant European efforts to reduce dependence on fossil fuels. However, he believes oil prices are less inflationary today than in the past because there is less sensitivity to oil price hikes due to gains in energy efficiency.
CIBC managing director and deputy chief economist Benjamin Tal’s views on the potential impact of inflation and rising interest rates on the housing market
BY CARLA GILES
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I SUMMER 2022 CMBA-ACHC.CA
CMB MAGAZINE
