that has year-over-year increases in the consumer price index accelerating to eight per cent this summer, an alarming number for a group of policymakers charged with keeping inflation at about two per cent.
To be sure, that’s not the base case. The central bank is betting it can avoid the worst-case scenario and achieve what economists call a “soft landing” from elevated levels of growth.The Bank of Canada’s favourite gauge of the economy’s temperature is the “output gap,” which estimates the difference between gross domestic product and the amount of goods and services the central bank thinks the economy can produce without stoking inflation.
The central bank can’t do much about supply, but it can influence demand, and it is now bent on curbing our desire to buy stuff.“The only way for the to lower inflation is by slowing the domestic economy, creating excess capacity and reducing domestic inflationary pressures,” Charles St-Arnaud, chief economist at Alberta Central and a former staffer at the central bank,.
Real estate, which now represents about 13 per cent of Canada’s gross domestic product, compared with about 11 per cent at the start of the low-interest-rate era in 2008, will be a significant drag on growth for at least the next couple of years, according to the Bank of Canada’s outlook.