Today the Bank of Canada has increased its key overnight lending rate to 3.25%, a 0.75% increase. Overall, this year the BoC has raised its key rate by 3.0% since March, rivaling the mid-1990s in rate increases. Per the BoC:
“The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.”
This would be their “core inflation” target which excludes food & energy. In July the core inflation rate was in the 5% range.
The BoC is providing the following inflationary causes for its actions: a.) volatile commodity prices, b.) continuing COVID-19 lockdowns in China, and c.) the war in Ukraine. Of these, the primary cause is the lockdowns in China.
China is now experiencing the same covid ravaging that the western world experienced in 2020 & 21. It is following the failed policy of lockdowns that the western economies have learned did not work. China is one of the largest goods exporters to North America, therefore the lockdowns there are directly affecting our supply chains, reducing manufactured goods available and thus driving prices up because demand remains strong. This is a short-term issue that affects Canada. Longer term; it is predicted by demographers and economists that China’s population will reduce by nearly 50% by 2050 which will create a long-term economic problem for the global economy. China’s long-entrenched “one child” policy and its massive urbanization over the past twenty years is creating this situation for them.
For the complete transcript of the BoC’s release today click here.