(Ottawa) In retrospect, governments and central banks should have withdrawn stimulus sooner as economies recovered from the COVID-19 pandemic, which likely would have limited inflation, a Bank executive admitted Tuesday. from Canada.
Posted at 5:06 p.m.
In a speech at the University of Waterloo, Deputy Governor Paul Beaudry said a faster global withdrawal of fiscal and monetary stimulus during the post-pandemic recovery would likely have translated into lower inflation. .
Mr. Beaudry pointed out that the budgetary and monetary policies of different countries have repercussions, elsewhere in the world, which are not always taken into account.
One of the lessons learned from the global financial crisis of 2008-2009, he recalled, is that countries would have benefited from a more gradual withdrawal of stimulus measures, due to the fallout effects.
This lesson, he said, influenced policy decisions during the pandemic. However, Beaudry added, the COVID-19 economic crisis was different, and public health measures meant supply in many sectors couldn’t keep up when demand started to rebound.
“There have been bottlenecks in these sectors due to an increase in demand due to a combination of stimulus policies, closures and reopenings, as well as the fact that consumers have turned away from service sector. »
Simultaneous stimulus provided by countries through government support programs and low interest rates has had ripple effects globally and contributed to supply chain bottlenecks. supply,” explained the Deputy Governor.
“It may be that a somewhat faster process of withdrawing stimulus measures globally would have benefited all countries more. »
However, the stimulus measures contributed to a faster-than-expected rebound in the economy, as labor markets recovered six months earlier than after the global financial crisis, Beaudry added.
“Obviously, the budgetary measures adopted enabled us to avoid more serious consequences. »
Going forward, the Bank of Canada will focus on clear communications with the public about its policy decisions, Beaudry said, to ensure Canadians don’t expect high inflation persists for a long time.
Central banks typically worry when people and businesses expect inflation to stay high, because those expectations can translate into even higher prices.
Mr. Beaudry also addressed concerns, raised by some, that the central bank would have to oversee a major economic slowdown, or even a recession, to bring down inflation.
The Bank of Canada believes people set their inflation expectations based partly on past inflation and partly on central bank communication about the direction of monetary policy, Mr. Beaudry.
The deputy governor said the bank is looking at effective communication with the public about monetary policy, to help alleviate some of the heightened concerns about the persistence of inflation.
“The bank is committed during this difficult time to keeping its communications clear, simple and focused on its inflation mandate,” he said, adding that the more effective the bank is in its communications, the longer a recession could be avoided.
The Deputy Governor concluded by reiterating the bank’s commitment to bringing inflation back to its target of 2.0% and thereby fulfilling its mandate.
“We will continue to take all necessary measures to restore price stability for households and businesses. »