A PRIMER ON INFLATION

While dramatic increases in housing prices across Canada over the past two years have arguably received the lion’s share of media attention to economic issues, rising prices for food, automobiles, and gasoline have also captured public attention and raised awareness among Canadians of the broad-based nature of recent price increases. In response to the recent and persistent rise in inflation, the Bank of Canada raised its policy interest rate in March 2022 by 25 basis points or a quarter of one percent. It also announced other measures to tighten domestic credit conditions as steps toward restoring relative price stability. A large percentage of Canadians have not faced a prolonged period of rising interest rates, including mortgage rates, which reached double-digit levels in the late 1970s and early 1980s. The possibility that economic conditions might repeat those of the 1970s and 1980s is a cause for genuine concern as current inflation conditions prove to be much worse than monetary authorities and private sector economists foresaw at the start of the COVID-19 epidemic.