Originally Posted by
davidI
It doesn't matter why the inflation is occurring, the banks can't raise rates before wages and profits catch-up to allow households and businesses to cover their debt-service costs. The entire point is that Central banks are trying to create the inflation to monetize their debts while maintaining GDP growth and employment - they have a lot less interest in controlling real-world inflation than you would think. They just want to keep their jobs and ensure people are wage slaves that rely on big government support.
The BoC also doesn't give a shit if the CAD tanks - in fact, they probably want it to tank to help get manufacturing in Onterrible and Quebec going again after Trump's tariffs. Further, as markets rotate back into a bull commodity cycle, that should be CAD positive (though Canada's fiscal imbalance and debt-load make it difficult to be bullish on the loonie unless the BoC does raise rates before the Fed).
There is. Keynesians think inflation results from economic pressures like production cost increases (cost-push) or increases in demand (demand-pull). Monetarists (Friedman/Schwartz) think inflation comes from money supply (you may have seen M*V=P*T before).
My view is that inflation will come from both. There was a supply disruption for a lot of goods and commodity prices have increased a lot (cost-push), there's a lot of pent-up demand from a year of restrictions and there remains little point in saving given low interest rates (demand-pull), and the money supply around the world has been expanded (though not in the way most people think).
The truth is, Central Banks don't expand money supply as much as private banks do. Private banks aren't multiplying money like they used to since no matter how low rates are, people and businesses generally don't need to take on more debt since they've been maxing their balance sheets at progressively lower rates for the last decade. Further, a lot less capital is required for asset investment in the world of growth/tech companies compared to traditional industry.
My view is that we'll continue to see inflation in basic needs like food, fuel, housing, etc. and deflation in consumer goods like electronics, clothing, furniture, autos, etc. as the competence of the developing world continues to increase with respect to manufacturing, labour is replaced by machinery, and quality of materials continues to decline (i.e. shittier but cheaper - like how my Grandfather's tools run laps around what is currently available or furniture progressively devolves from real wood to chip board to plastic/fibre bricks).