Some economists have said the bank misread the trajectory of inflation because it did not pay close enough attention to the amount of money in circulation
. The money supply expanded significantly in 2020, partly as a result of the Bank of Canada’s program to buy federal government bonds, which was used to push interest rates even lower.
The central bank has not focused on the money supply when making monetary policy decisions since the 1980s. In his interview with the Financial Post, Mr. Macklem appeared to dismiss the idea that the bank’s forecasting mistakes were because of inattention to money, which he said was “not always that reliable an indicator” of inflation.
“You definitely want to keep an eye on money, but ultimately what you have to look at is, where is demand in the economy, relative to the economy’s ability to produce the goods and services that people want. And if supply can’t keep up with demand, you’re going to get inflation,” Mr. Macklem said. Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening.
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