Manulife economist Frances Donald says structural changes such as trade barriers and climate change have altered inflation dynamics. Read on.
Average hourly wages have been growing at an annual rate of around four per cent to five per cent for the better part of a year. The Bank of Canada says that’s contributing to “excess demand,” because it’s calculations suggest wage growth of more than about three per cent encourages households to spend at a pace greater than the economy’s capacity to keep up with orders.
To be sure, since the 1930s, as globalization took root, open markets led to “a lot of great outcomes,” she said. However, “now, the big question is, are we actually going to see this paradigm shift where, the nature of globalization changes, we begin to see de-globalization types of tendencies?”Donald said if that happens, it would be a “massive disruption” to how economies function, trade flows and goods and services prices are set.
At 4.5 per cent, the central bank has taken a pause on hiking rates to monitor signs of economic cooling, but it raised rates at the fastest clip on record to tame inflation that was pushing above five per cent starting last year.
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