BoC will have to 'kill the economy' to crush inflation: Rosenberg
BNN Bloomberg
Prominent Bay Street economist David Rosenberg said if the Bank of Canada is serious about tamping down runaway inflation through higher interest rates, the central bank will “kill the economy” at the same time.
Prominent Bay Street economist David Rosenberg said if the Bank of Canada is serious about tamping down runaway inflation through higher interest rates, the central bank will “kill the economy” at the same time.
“You got to understand if they're going to crush the inflation we're seeing, considering where the sources are, they're going to have to kill the economy,” said Rosenberg, president, chief economist and strategist at Rosenberg Research, in an interview Wednesday.
He argued most of the inflation that has emerged during the pandemic has stemmed from supply-side issues such as global supply chain disruptions, which is much harder to rectify with monetary policy compared to tackling inflation caused primarily by household consumption.
“If the central banks think that this is really demand-led inflation, which didn't come out of nowhere, it came out of the pandemic. And you could argue that, yes, the Russian invasion of Ukraine is going to aggravate the bottlenecks - you see what's happening in commodity markets. So what exactly is the Bank of Canada or the [U.S. Federal Reserve] going to do about the price of oil [or] the price of wheat?” he said.
“Of course, they're concerned about inflation expectations. But there's no getting out of jail free card here. This global supply curve of everything has become totally inelastic, which means that even small increases in demand can create the outsized inflation that we've seen.”
On Wednesday, the Bank of Canada hiked its overnight lending rate by 25 basis points to 0.50 per cent and signalled more rate hikes are on the horizon. It marked the first rate hike since 2018.