Quote:
Originally Posted by Sidney Crosby's Hat
I'm no economist, but this is how I understand it:
If housing prices go up (due to actually going up as a result of lower general interest rates or people being forced to re-up their mortgage at a higher fixed interest rate as the pandemic rates start to come due), won't that actually create a downward pressure on inflation (non-housing related) because people will have less disposable income?
Sure, maybe actual inflation numbers would be higher because people are paying more for their mortgages than they were before, but Bank of Canada raising interest rates would probably really hurt the economy in that case, right?
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In general the two problems I can see with this theory are how renters fit into the mix, when you have home owners with fixed mortgages costs, and an escalating rent market because of rising interest rates, you could actually end up cycling more money through the economy in the short term.
Second wage responses. Mortgages and Rents are such sticky payments, that people are more willing to risk demanding wage increases, or move to higher paying jobs than to lose their house, which it the actual cycle the BOC was worried about. It's one thing to see the CPI up for a period of time, but spiraling wage increase, cause that to continue in a way that is hard to stop, and because people benchmark price expectations over ~18 months, if you can't slow inflation for a period of ~18 months before an election, the chances of turning over a sitting government are much much higher.