Thread by @bankofcanada

We keep talking about inflation becoming “entrenched.” What does that mean?

The more people believe inflation will continue to increase and the longer they believe it will last, the more likely it is to remain high.

👇 Keep reading to learn more. #CdnEcon #AskTheBoC

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Prices tend to go up⬆ when the demand for goods and services is more than the #economy can supply.

Prices tend to go down⬇ when the #economy produces more goods and services than people want or need.

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If people believe inflation will remain low, short-term jumps in prices are not a huge deal.

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✔️Businesses won’t immediately raise prices.
✔️Workers won’t demand higher wages to compensate.
✔️Consumers spend and borrow as usual.

Confidence that inflation will stay low helps keep prices stable.

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It gets complicated when #inflation is high and unpredictable.

The more people believe inflation will continue to increase and the longer they believe it will last, the more likely it is to remain high – or entrenched.

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When expectations of high inflation become entrenched, inflation becomes self-fulfilling.

That’s because people and businesses expect that it will stay high or keep rising and change their behaviour accordingly.

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Right now, inflation in Canada is too high.

We’re acting forcefully by raising interest rates to stop inflation from becoming entrenched and to bring it back to our 2% target.

bit.ly/3c2fJxs

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