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Forget rate hikes — these economists say to tame inflation, we need cheap oil

Rising interest rates will increase borrowing costs and slow the economy. But they won’t address one of the biggest drivers of inflation: fossil fuel costs.

The chair of the U.S. Federal Reserve, Jerome Powell, took the dramatic step of increasing borrowing costs by 0.75 per cent, a move Canada is expected to follow. He said the move will slow demand and help get the jobs market balance out. 

“But there are many things we can’t affect,” Powell told reporters this week in Washington. 

“Those would be commodity price issues we’re having around the world due to the war in Ukraine.”

Inflation numbers in Canada released last month laid the facts out for all to see. Overall, the consumer price index was up by 6.8 per cent from the year before; 1.8 percentage points of this was due to energy overall, while 1.3 percentage points of it was due to gasoline alone. 

So, about a quarter of April’s growth in the price index was a direct result…

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