So what do you do when you have an inflation target of between 1% and 3%, an economy running at capacity (unemployment is at a 30-year low, estimates for the output gap at zero), an overnight rate target of 2.75%, and 2.6% y/y CPI inflation?
That's right. You raise interest rates.
Shouldn't they have waited to see what the fall-out from the higher loonie (oil prices) is before they went and did that?
Posted by: thwap | October 19, 2005 at 06:47 PM
The consensus of opinion among Those Who Decide (more precisely, of Those Who Advise Those Who Decide) is that the overall effect of oil price movements is generally neutral. Some sectors/regions do better, and others do worse, and the two effects cancel each other out at the national level - which is where monetary policy is decided.
Posted by: Stephen Gordon | October 19, 2005 at 08:08 PM