Jacqueline Best, Professor, School of Political Studies, the University of Ottawa.__________
With the Bank of Canada announcing an oversized interest rate hike this week, it might seem like central banks are coming to rescue us from inflation once again. Yet while they did play an important role in mitigating a COVID-induced recession, central banks don’t have the power to solve our inflation problem.
There’s no question that the inflation outlook today is worrying. With inflation hitting 5.7% in March in Canada, we are facing a perfect storm of inflationary pressures from a combination of supply chain bottlenecks, pent-up demand and massive increases in energy prices from Russian sanctions.
As politicians start to make noise about inflation, we need to be careful not to accept the outdated assumption that central banks can control inflation by limiting the money supply.
Conservative Party leadership hopeful Pierre Poilievre recently asserted that the solution to inflation is to “stop the central bank from printing money to pay for government spending.” This is not only factually incorrect (the Bank of Canada stopped purchasing large amounts of government bonds back in October of last year), but also outdated.
Back in the late 1970s and early 1980s, Ronald Reagan and Margaret Thatcher capitalized on public anxiety around rising prices by bringing their conservative governments into power on the promise of getting tough on inflation using monetarism.
We should not be too surprised, then, to see the legacy of this outdated economic policy living on in members of the Conservative Party of Canada.
Poilievre has resurrected the age-old theory — let’s call it quack monetarism — that inflation is caused by too much money
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