World Banks say inflation is transitory, Canadian think-tank disagrees

Worldwide money is not changing hands quickly, but is being printed at an unprecedented rate.
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VANCOUVER, British Columbia, Dec. 02, 2021 – The world’s central banks including the Bank of Canada, say that due to global supply-chain disruptions caused by Covid19 inflation is rising but maintain that the pandemic effect will be short lived. A Canadian think tank posits this likely will not be the case. While the money printers keep printing, inflation will keep rising.

“It is reckless to believe that a continuation of the recent growth rate of the money supply will not be a significant inflationary accelerant.” 

Steven Globerman, professor emeritus at Western Washington University

The Fraser Institute study goes on to say that there are now a host of factors plaguing the world stage that means we will be seeing inflation rise for an extended period. While money is being put into the system at record rates is the major trigger factors such as aging population is slowing labour growth. The prospect of increased corporate tax and government regulations to pacify the economic accelerants and green mandated initiatives (while well-intentioned) slowing the productive energy investments and ultimately raising energy costs are major factors. Ultimately consumers and businesses will be on the hook for the policies.

The report highlights that “a number of corporate executives and some private-sector economists have argued that monetary authorities are underestimating the potential for sustained inflation if central banks do not reverse the substantial monetary easing they have implemented over the past year or so”.

The study’s author Steven Globerman, Resident Scholar and Addington Chair in Measurement, Professor Emeritus, Western Washington University, says “While COVID’s effect on the economy has certainly contributed to the rising cost of goods and services, if central banks and governments continue their aggressive policies, higher inflation could persist even after the pandemic subsides.

The study assesses the potential for the rate of inflation to remain well above the annual 1.9% (for Canada) and 2.3% (for the United States) average rates that prevailed over the period from 1991 to 2020. In particular, it says potential output of developed economies will slow significantly over the next 10 years.

Specifically in Canada the report points to the following inflationary factors.

  • aging populations in developed countries including Canada, which will contribute to slower growth of the labour force, reduced entrepreneurship, fewer new business startups and slower overall economic growth
  • higher business taxes and more government regulations, which discourage business investment and slow productivity growth
  • energy mandates (e.g. Ottawa’s emissions cap for Canada’s oil and gas sector), which divert resources away from private investment and raise energy costs
  • possible faster “turnover” of the money supply and/or accelerated rate of spending in the economy

“If central banks want to ensure that today’s higher inflation is transitory, they need to stop injecting unprecedented amounts of money into the economy and return to a more measured monetary policy,” Globerman said.

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