Why inflation isn't just an "us" problem

I know, another post about inflation! But stay with me. I've kept this one short and sweet with the highlights of the recent BoC meeting and Fed retreat in Jackson Hole and what that means for the rest of 2022 and into 2023.

It's not just an "us" problem

The chart below from the IMF shows the inflation struggles of 88 other countries. It doesn't paint a pretty picture but it does show that the overall inflation we are feeling here in Canada goes well beyond something that the Bank of Canada will be able to bring under control all by themselves.

What happens now?

At this point that "soft landing" the BoC spent much of the pandemic talking about is all but a pipe dream. Since March of this year, the Bank has taken prime from 0.25% to its current 3.25%. A total increase of 3% and with two more meetings left this year, they show no signs of easing. If we use history as a guide, the BoC and the Fed (in the US) are about to break the North American economy. Given how unhinged inflation is, it wouldn't be surprising if the BoC takes Prime to around 4% and keeps it there for much of 2023. Obviously unanticipated events could change this but most economists feel that it will be 2024 before we see any easing of rates.

On a more optimistic note...

Home values are unpredictable in the short term, but very reliable in the long term. In the long run, home prices appreciate. Simple as that. Nothing will change that long-term. Challenging times are here to stay for a while but we will get through it.

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