That is a real danger. David Dodge is an anti-inflation maniac and has been dying to raise rates for some time. The BOC has sorted energy out of the inflation equation for some months, but might not do so if wage pressures come to bear to cope with rising energy costs.
Personally, I feel that the rising energy prices will be enough to slow the economy, and interest rate pressure will not have to be brought to bear, but that would be pretty conservative for a central bank hoping to flex it's muscle.
This is history repeating itself. When energy costs and other minor blips caused minor inflationary pressures in about 1988, by 1990 the BOC had responded like mad with insane interest rates. Instead of cooling a hot economy, they tanked a warm economy and sent us into a lengthy recession. Even neo-con policy wonks and economists admit that the BOC made a grave error, but do we think anyone will learn from that? Doubt it.
There is back-room political pressure to raise interest rates to raise unemployment and keep wage pressures low, especially in the service industry sectors. Also, wealth holders (lenders) have suffered from low rates.
The real problem is the huge increase in debt. Mortgage debt is very high and the worrisome part is the high debt:equity ratio that many have. Too many people "upgraded" their houses based on the equity they built in the real estate market moves of 1998-2001. Also, consumer spending debt is very high with large credit card balances. People have financed their entire lives. They borrow/lease their cars, the owe on their TV and furnitiure and borrow for vacations. This has made the typical Canadian family VERY sensitive to interest rates.
