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rates

KEY BANK OF CANADA INDICATOR RATCHETS UP The Bank of Canada faces conflicting data as it weighs the benefits of lowering rates or maintaining the status quo: an uncertain economy with rising prices.

Canada’s central bank has a narrow mandate: tomanage the country’s money supply and, in doing so,maintain a stable price environment. Should the prices of things such as gasoline, lettuce, tank tops, and sofas rise too quickly, the Bank may act to quell further increases by raising interest rates and incentivizing saving (as opposed to spending) at the margin. Conversely, when prices show signs of stagnation or decline, the Bank will lower rates to incentivize spending (at the expense of saving). With this in mind, it is noteworthy that the latest year-over-year consumer price data show the annualized inflation rate rising to 2.4%—well within the Bank’s 1%-3% target

range, but substantially higher than the previous year’s 1.4% increase. In Metro Vancouver, prices have most recently been rising at a similar pace— 2.2%—though they have abated somewhat from the previous year (when inflation registered at 2.3%). Some of this can be chalked up to relatively lower housing costs, as well as to cheaper gasoline—implying that it also might not last. With the region’s housing market heating up again, and gas prices recently creeping upwards, inflation could accelerate through the latter half of 2020. (Good thing then that wages are expected to rise faster.)

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