[opendoor]

Originally Posted by Firebot

Calculating inflation rate minus interest rate isn't a tangible statistic to measure anything outside of real inflation. It has little correlation.

Economists worldwide will be interested to learn that real interest rates don't matter in influencing future inflation.

UK's situation is more dire then Canada's. There are also some very obvious geopolitical reasons for why Europe is seeing higher inflation. The US also has some significant challenges it needs to face.

Both being arguable worse doesn't make Canada's garbage smell any better, and unlike the US, Canada does not have a global currency that investors flock to during a crisis, exasperating our inflation woes. Canada also has the house of cards it built with its RE bubble it has to manage and avoid it fully collapsing and putting Canadians on the streets. Canada's situation is unique to Canada and combating inflation here with interest rates is much more likely to cause a deeper recession then in the US.

All that means is that Canada doesn't have to raise rates as high as other countries to achieve the same reduction in liquidity. I mean, you can't have it both ways. You're simultaneously accusing the Bank of Canada of caving to political pressure and shirking their responsibility by not raising rates by 75 points, while also saying that Canadians will be living on the streets as rates go up. Those two positions aren't logically consistent. If interest rate increases have an outsized and catastrophic effect on Canada's economy (which is far from a given), then they simply don't need to rise as high to have their intended effect when compared to other countries.

Diverging from the US will tend to hurt the Canadian dollar, so it will impact things to some degree, but that's been the reality for our country's entire existence. And the US also won't need to raise rates all that high either because like Canada, they have cheap domestically produced energy which is what's really driving runaway inflation in Europe.

if you really want to pull some wild, completely irrelevant context may as well pull Argentina.

https://www.cnbc.com/2022/09/16/arge...vershoots.html

let's see, according to opendoor math and conclusion derived from it, there's only a 5% spread between inflation and interest rates, they are doing great and managing their economy so well! Much better then Germany and on par with the US.

Is that the conclusion you are trying to project here? That Argentina is doing better then Germany and combatting inflation better? Or Argentina cannot be counted because of some narrative on what countries can be used?

What about Brazil? It has interest rates at 13% and inflation at 8.25%, it's running the best economy in the world and handling inflation the best most clearly according to your context.

Argentina and their near decade-long period of hyperinflation is basically irrelevant to countries not experiencing that. But even then, they've had -20 to -30% real interest rates for most of the year which are extremely inflationary.

As for Brazil, their inflation has dropped considerably in recent months and they're currently seeing deflation. That's in large part due to them having a period of positive real interest rates. That says nothing about the rest of their economy, just that positive real interest rates will tend to reduce inflation (though obviously not always). And being closer to positive real interest rates (like Canada is) will tend to reduce inflation more than being in deeply negative real interest rates (like most of Europe is), though again, not always.

Lesson: don't try to make conclusions out of a statistic that has no correlation and not accounting the unique economic situation of each country. Raising interest rates too high too quick has severe economic consequences, likewise not combating inflation (as the BoC failed to do until it was too late for any soft landing approach) could cause it to spiral out of control.

Canada raising interest rates to 10% and killing inflation but killing the economy in the process, doesn't make them 'win' some type of race. And that is why they will likely raise their CPI inflation target despite just a year ago still stubbornly calling inflation transitory.

All I'm talking about is inflation. Economies with higher real interest rates will tend to see inflation drop faster than economies with lower rates. That's basic economics. And as that list shows, despite Canada's rate increase being below what a bunch of analysts thought, we still have among the highest real interest rates in the industrialized world.

You've created a fictional counterfactual in your head where raising rates by 25 points a few months sooner would have had a significant effect on long term inflation rates. There is simply no logical basis for that. Outside of 2 countries who've experienced significant deflation risks over the last couple of decades (Japan and Switzerland), no industrialized nations have avoided high inflation post-COVID.