As Beaudry explained on Wednesday, for nearly 30 years, the Bank of Canada hasn't had to worry about inflation. The opening of China to the world economy, globalization, large savings rates by boomers and growing inequality that allowed rich people to invest and not spend meant that by 2018 real interest rates had fallen below zero.
Instead, in those days, when unemployment was rising the central bank would cut rates and when unemployment was low, it would raise them a bit, he said. Inflation just wasn't a problem and when it started to kick in at the end of 2021, it caught central bankers around the world by surprise.Before that time, many people had forgotten how inflation worked.
He said that this is new and painful for Canadians who were paying low real interest rates on their mortgages while watching their real estate assets appreciate at between 10 and 30 per cent. "That's a really good deal," he said.