In The Know

MLI’s quarterly economic report warns against inflation

MLI Senior Fellow Philip Cross takes a look at the state of Canada’s economy so far in 2021 and examines the impact of quantitative easing (QE) on money and credit in Macdonald-Laurier Institute’s quarterly economic report. 

The Canadian economy is working to recover from its lockdown-induced coma, with real GDP growing by 2.3 percent in the fourth quarter of 2020. Employment plunged at the turn of the year, however, as 213,000 jobs were lost in January after declining 53,000 in December as well — the result of government-ordered shutdowns to control a resurgence of the pandemic after the holidays. 

Of special concern is the increased tendency of central banks to “print money” and risk inflation, Cross writes.

“Rising commodity prices fuel speculation that inflationary pressures may surface faster than financial markets or central banks anticipate. This reflects ongoing concerns about extraordinary policies adopted by central banks spawning higher inflation dating back to the Great Financial Crisis of 2008,” he writes.

While many economists are unfazed, sharing the central bank’s confidence that inflation will remain subdued following 2020’s recession, “the course of inflation over the next few years will be a test of whether current central bank theories of inflation hold sway,” he concludes.

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