The Bank of Canada gets serious about inflation...or does it?
In particular, does it accept that loose monetary policies, not just "global factors", are a proximate cause?
Some of us have been warning of the danger of rising inflation in Canada and have been urging the Bank of Canada to cease being complacent and get serious.
It seems they’re listening — not necessarily to me, obviously — but perhaps to their own internal forecasts. They’ve raised the policy interest rate 50 basis points and have finally begun the long overdue process of “quantitative tightening” — the reverse of QE — and this is good news.
See here and here for more details.
That the central bank is getting serious about inflation, at last, is good news. The bad news? Their failure to acknowledge that excessive money growth has been a driver of inflation. They maintain that it’s principally all about supply shocks, exacerbated by the Ukraine conflict. But — inflation was on the rise well before this conflict, and with real GDP growing, it follows that excess inflation is necessarily a product of excessive money growth.
Bottom line? The Bank of Canada is starting to do the right thing, but for the wrong reason. Hopefully this dissonance won’t create problems down the road. We’ll see.