Canada’s deliberate suppression of housing development is being identified as a significant factor behind the country’s ongoing inflation issue, according to analyst Ian Lee from Carleton University’s Sprott School of Business.
Despite initial hopes of a turnaround, recent data reveals a 4.4% increase in inflation, indicating that the problem persists.
Lee argues that the Bank of Canada’s efforts to control inflation through interest rate increases have not yielded the desired results, highlighting the stickiness of inflation and the need for further measures to bring it down to the bank’s target of 2%.
When questioned about the possibility of revising the inflation target, Lee suggests it would be controversial, as the consensus among economists, central bankers, and finance professionals is that 2% is an optimal target.
Deviating from this could lead to deflation or the release of inflationary forces.
However, the analyst emphasizes that the current situation serves as a reminder of the challenges faced during the 1970s and early 1980s when interest rates had to be raised to 20% to combat inflation.
He cautions against complacency, citing the difficulty of containing inflation once it resurfaces.
One of the driving factors behind inflation, as stated by Statistics Canada, is the rise in rent prices and higher mortgage interest costs.
Rent inflation has reached 6.1%, and this trend raises concerns for renters in the future.
Lee expresses pessimism about achieving the 2% inflation target due to the housing problem in Canada.
Municipalities across the country have intentionally limited housing supply for years, resulting in severe shortages.
Additionally, the increasing levels of immigration exacerbate the situation, as Canada is struggling to build enough houses to accommodate both newcomers and existing residents.
Lee argues that these pressures stemming from the housing crisis significantly contribute to inflation, emphasizing the urgent need for increased home construction to alleviate the problem.