The Consumer Price Index decline in March confirms that deflation remains a greater risk than rising inflation. The annual inflation rate fell to 1.2% nationally and turned negative in one province, Prince Edward Island. The recent revelation of the first annual decline in American consumer prices in half a century underscores concerns about deflation. While falling prices benefit consumers with […]
Read moreI was out of the country but have the impression that the extremely gloomy OECD forecast and critical recommendations for Canada released just before the G20 London summit were not given the attention they deserved. http://www.oecd.org/document/59/0,3343,en_2649_33733_42234619_1_1_1_1,00.html The OECD released its intermim outlook largely to push the case for more stimulus by G20 countries, particularly those, like Canada, with strong fiscal […]
Read moreThe increase in consumer prices between January and February suggests that the threat of deflation may be less imminent than it appeared during the previous five months of falling prices. Whereas three provinces actually posted negative inflation rates in January, all posted positive inflation rates in February. Today’s Bloomberg report begins by noting that this data “may ease pressure on […]
Read moreA couple of weeks back, I posted on the topic of “quantitative easing,” the policy of having the central bank aggressively purchase government (and possibly corporate) debt in the open market ostensibly to increase the money supply. I argued that at best, quantitative easing was a pricing operation that worked at the margin by increasing demand for a given asset […]
Read moreThere has been much talk, of late, about the ineffectiveness of conventional monetary policy — i.e., lowering the target for the overnight interest rate to incite borrowing and hence economic expansion — and the need for monetary authorities to consider something more dramatic, like so-called “quantitative easing” — the active buying of government debt and other securities in the open […]
Read moreNumbers Worse than Official Expectations Real GDP dropped by 1% in December 2008, as large a monthly decline as in the August 2003 blackout. The difference is that, whereas August 2003 was an aberration, December 2008 continues a worsening trend. During 2008 as a whole, the economy eked out 0.5% growth, which falls short of the 0.7% forecast by both […]
Read moreIn the last few months, governments here and abroad have made every effort to “turn on the taps” of credit — in Canada, we have more than half a dozen such programs (and counting) under the banner of the EFF (Extraordinary Financing Framework), including (but not limited to): the IMPP (InsuranceMortgage Purchase Program); the CSCF (Canadian Secured Credit Facility); the […]
Read moreJust before Christmas, and lost between a trip to the mall and turkey with stuffing, David Laidler wrote a phenomenal piece on how we should be thinking strategically about a coordinated monetary and fiscal policy. I have reposted the key excerpt below because it should really be part of the mainstream discussion about how we address the growing crisis in […]
Read moreThe Bank of Canada did not cut its target interest rate enough this morning, leaving it a full percentage point above the US central bank rate. As I argued last week, the Bank of Canada should have matched the American Federal Reserve and cut to zero. Astonishingly, the Bank of Canada’s press release acknowledges that we are headed for deflation: […]
Read moreThe Bank of Canada should announce a target interest rate of 0% on Tuesday. This move would match the action taken by the US Federal Reserve a month ago. Recent experience suggests that the chartered banks would not pass along the entire cut. But such a dramatic announcement by the Bank of Canada would place strong pressure on the chartered banks to noticeably […]
Read moreThe best prof I ever had doing my undergrad at Western was David Laidler. I took a fourth year economic policy course with him, and learned a lot, especially a certain horror known as inflation (John Crow soon embarked on a disastrous war on inflation in the early 1990s that still sends shivers up many of our spines). Interestingly, Laidler […]
Read moreIn November, prices fell for a second consecutive month and annual inflation fell for a third consecutive month. The Consumer Price Index declined from 3.5% in August to 3.4% in September, 2.6% in October, and 2.0% in November. A few more months of decline could turn this annual rate negative. While steadily falling prices would be a boon to individual […]
Read moreThe Bank of Canada got it right this morning in cutting the key interest rate by 0.75%. This bold action makes up for the timidity of cutting by only 0.25% last time. The central bank should be applauded for (finally) recognizing the severity of the economic crisis and going further than recommended by the C. D. Howe Institute’s conservative Monetary Policy […]
Read moreThe ever deepening global and national economic crisis has produced highly divergent views among mainstream economists on how radical a change is needed to orthodox fiscal and monetary policies with their focus on balanced budgets and low inflation. At one extreme, the recent Economic and Fiscal Statement indicates that the prevailing Department of Finance view is still that only very […]
Read moreMany have noted that central bank lowering of short-term interest rates is running up against its limits, and we are hearing calls for major fiscal stimulus, i.e. large deficits. In a normal world, this raises the spectre of the government having to sell bonds to the private sector to get the funds, which could actually increase long-term interest rates and […]
Read moreMarc recently noted the Bank of Canada’s announcement that it was cutting interest rates to increase future inflation up to the 2% target. In the comments section, Stephen argued that there is nothing noteworthy about the Bank trying to achieve this target. Everyone else contended that the Bank’s new line deviates significantly from its previously hawkish position on inflation. It […]
Read moreThere is a new line of thinking over at the Bank of Canada: rather than raising interest rates to maintain the inflation target at 2%, the Bank is now stating that it might have to cut rates (beyond the 25 bp reduction today and 50 bp a couple weeks ago) to maintain the target. From a central bank that in […]
Read moreThe Bank of Canada was right to reduce its target interest rate this morning, but it did not go far enough. The labour movement has been proposing significantly lower interest rates for at least a year. Even the C. D. Howe Institute’s conservative Monetary Policy Council, which was calling for an interest rate hike only three months ago, proposed a […]
Read moreThe Bank of Canada today announced what appeared to be a dramatic cut (witness the splashy headlines) in the target for the overnight rate — a 50 basis point reduction. Bank of Canada to the rescue? Think again. The move was greeted with yawns from the banking community, which lowered mortgage rates by a mere 25 basis points. I’m surprised […]
Read moreThe Progressive Economics Forum’s open letter is now making the rounds. Signatories include four chairs of economics departments, two former Presidents of the Canadian Economics Association, a former federal Secretary of State (Finance), and a former Quebec Minister of Industry. Here’s the text and the 88 signatories: Open Letter from Canadian Economists on the Current Economic Crisis and the Appropriate […]
Read moreFor a third consecutive announcement, the central bank’s communications department reused the headline, “Bank of Canada keeps overnight rate target at 3 per cent.” This repetition implies that central bankers have not perceived a fundamental shift in the balance of factors considered since they last changed interest rates four and a half months ago. In fact, much has changed in […]
Read moreThis morning, Statistics Canada released the Consumer Price Index (CPI) for June. Inflation driven by commodity prices justifies higher wages, but should not prompt the Bank of Canada to hike interest rates. Inflation and Wages Rising consumer prices nullified most of the wage gains that Canadian workers made during the last year. From June 2007 through June 2008, consumer prices […]
Read moreThis morning, the Bank of Canada left interest rates unchanged. It should have cut interest rates because Canada’s slowing economy and overvalued currency are more serious problems than the spectre of inflation. Stimulus Needed Last week’s Labour Force Survey indicated that Canada lost 39,000 full-time jobs in June, pushing unemployment to its highest level in nearly two years. Statistics Canada’s […]
Read moreThe Bank of Canada is currently considering, through research, a shift from inflation targeting to price level path targeting. For previous blog commentary and a good critique by Jim see http://www.progressive-economics.ca/2006/12/03/bank-of-canada-inflation-targeting/ The general idea is that if inflation exceeds the target of 2% in any given year, the future price level path should be kept on course by keeping inflation […]
Read moreIt’s not often that I get my hopes up about a potential volte-face in the way we talk and think about economics at the policy and political level but this is by far the best news I’ve heard in a long long time. It seems that our very own Jamie Galbraith, scion of John Kenneth Galbraith and keynote speaker for […]
Read moreEver wonder what the Bank of Canada might do in the event of staflation (high/rising inflation & high /rising unemployment)? Wonder no more. In an interview with LaPresse, our new Governor Mark Carney states, in no uncertain terms, that the Bank’s objective would remain the same as it has been since the early 1990s, namely keeping inflation on target at […]
Read moreWhat is going on out in Canada’s wild and woolly financial system? First, the Bank of Canada convinces the Department of Finance and the Conservatives that it “needs” expanded powers to purchase a broader range of securities (see my earlier post for why their arguments are not very convincing). And then, earlier this week, a small notice on my Scotiabank […]
Read moreThink back to last October-November. The Canadian dollar went psycho for a few days — rising as high as $1.10. Then it came back down to mere parity with the greenback (leaving us a mere 25% over fair value, measured by PPP). Some time after that, then-Governor Dodge indicated in Senate testimony (on December 6) that he was “relieved” by […]
Read moreThis morning, the Bank of Canada lowered its key target interest rate from 3.5% to 3%. This welcome move was widely predicted. Perhaps more interestingly, the Bank stated that “some further monetary stimulus will likely be required to achieve the inflation target over the medium term.” Since December, the Bank has begun following the advice that the labour movement provided […]
Read moreThis morning’s Consumer Price Index release reveals that, in March, annual inflation fell to 1.4% and annual core inflation fell to 1.3%. The fact that both rates are well below the Bank of Canada’s 2% target gives it ample room to cut interest rates next week. Even the two highest-inflation provinces, Alberta and Saskatchewan, are no longer much above the […]
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