菲沙研究所-加拿大的财政政策削弱了应对通货膨胀的努力（英）-2023-41正式版

每日免费获取报告1、每日微信群内分享7+最新重磅报告；2、每日分享当日华尔街日报、金融时报；3、每周分享经济学人4、行研报告均为公开版，权利归原作者所有，起点财经仅分发做内部学习。扫一扫二维码关注公号回复：研究报告加入“起点财经”微信群。。ContentsExecutiveSummaryꢀ/ꢀiIntroductionꢀ/ꢀ1Monetarypolicyduringthepandemicꢀ/ꢀ3Fiscalpolicyduringthepandemicꢀ/ꢀ5Thesoaringoffederalspendingsince2019ꢀ/ꢀ7Inflation’ssurprisetogovernmentsandmanyeconomistsꢀ/ꢀ11FiscalstimulushelpedfuelinflationinNorthAmericaꢀ/ꢀ13Theroleofbothmonetaryandfiscalpolicyincontrollinginflationꢀ/ꢀ14Theunderminingoftightmoneypolicybycurrentfiscalstimulusꢀ/ꢀ17Avoidingfiscaldominanceofmonetarypolicyꢀ/ꢀ19Lowinflation’sinsulationofmonetarypolicyfromfiscaldominanceꢀ/ꢀ21Conclusionꢀ/ꢀ23Appendixꢀ/ꢀ24Referencesꢀ/ꢀ26ꢁAbouttheauthorꢀ/ꢀ31Acknowledgmentsꢀ/ꢀ31Publishinginformationꢀ/ꢀ32SupportingtheFraserInstituteꢀ/ꢀ33Purpose,funding,andindependenceꢀ/ꢀ34AbouttheFraserInstituteꢀ/ꢀ34EditorialAdvisoryBoardꢀ/ꢀ35ExecutiveSummaryInresponsetothelockdownoflargeswathesofCanada’seconomywhenCOVIDbegancirculatinginMarch2020,bothmonetaryandfiscalpolicyshiftedtounprecedentedstimulus.eBankofCanadaloweredinter-estratestonearzeroandexpandeditsbalancesheetoverfourfold,whilegovernmentsrandeficitsexceedingthoseincurredduringwartime.isextraordinarystimulus,alongwiththequickadaptationofbusinessesandindividualstosocialdistancingandtelework,helpedtheoveralleconomyrecoverrapidlyevenasindustriesprovidingclientfacingservicescontinuetostruggle.However,maintainingstimulusasmuchoftheeconomyexpandedbeyonditspre-pandemiclevelshelpedfuelinflationbyboostingdemandbeyondsupply.Afterabriefperiodofpricedeclinesin2020,inflationbegantopickupinthespringof2021,acceleratingtoa39-yearhighof8.1percentbyJuly2022.Inresponsetohigherinflation,theBankofCanadabeganwindingdownitspolicyofquantitativeeasingandthenhikeditspolicyinterestratesharplyfrom0.25percentto4.50percentduring2022.Intheinitialstagesofthepandemic,thefederalgovernmenthitarecord$327.7billiondeficitinfiscalyear2020-21andfolloweditupwithdeficitsof$90.2billionin2021-22and$43.0billionin2022-23.edeficitssignificantlyexceededthoserecordedbeforethepandemicbegan.AccordingtoformerfinanceministerBillMorneau,thefederalgovern-mentwas“distributingbillionsofdollarsmorethanwasactuallyneededunderthecircumstances”duringthistime.MorneaurevealedthattheattitudeofthePrimeMinister’sOffice(PMO)tospendingrequestswas“let’sgivesomethingtokeepthemhappy,”astancehesaid“shatteredanypretenseoffiscalrestraint.”Duringthepandemic,governmentleadersconsistentlyinvokedlowinterestratestorationalizetheirspendingsplurgeanddebtaccumulation.efederalgovernment,forinstance,arguedthat“Intoday’slowinterestrateenvironment,notonlycanweaffordtheseinvestmentsinCanada’sfuture,itwouldbeshort-sightedofusnottomakethem.”esuddenendoflowinterestratesin2022,however,didnotcurbgovernments’enthusiasmforspending.Federalspending,forexample,/iiiꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationextraordinarilyhighlevelsevenasCOVIDreliefprogramswounddownin2022.Infiscalyear2019-20,beforethepandemic,federalprogramspend-ingtotalled$338.5billion;inits2023budget,Ottawaprojectedprogramspendingtobe28.9percentaboveits2019-20level,reaching$435.9billionin2022-23.Moreover,fiscalstimulusmeasuresintroducedbefore2022arestillbeingfeltbytheeconomy,helpingtoboostinflationwellabovethefore-castsofmosteconomistsandcentralbanksatthestartof2022.eperiodduringwhichagovernmentdeficitisrecordeddoesnotalwayscorrespondtowhenstimulusisinjectedintotheeconomy.Muchofthemoneygov-ernmentstransferredtohouseholdsattheonsetofCOVIDin2020wassaved—as“pre-loadedstimulus,”inFinanceMinisterChrystiaFreeland’sownwords—andwasthenspentin2022asinflationsqueezedhouseholdpurchasingpowerandnormaleconomicactivitiesresumed.Intoday’shigh-inflationenvironment,tighterfiscalpolicywoulddampentheincreaseininterestrates.Althoughtheinitialupturnofinfla-tionhasbeendrivenlargelybysupplyshocksintheeconomy(ChenandTombe,2022),ithasalsolikelybeenfuelledinpartbythelargedeficitspostedduringthepandemic.Withoutfiscalrestraint,however,tightmonetarypolicyalonewillhavedifficultyreturninginflationtoitstargetrate.Monetarypolicyandfiscalpolicymustworktogethertoreduceinfla-tion.Highgovernmentspendinganddeficitsunderminedthecredibilityofmonetarypolicyinthe1960sand1970s;actingtogether,tightmoneyaccompaniedbyfiscalrestraintandregulatoryreformcombinedtocureinflationintheearly1980sandpreventedaresurgenceinCanadaintheearly1990s.ispaperdrawsonagrowingliteraturethatfindshighergovern-mentspendinganddeficitshelpedfueltherecentsurgeofinflationand,therefore,thatbothmonetaryandfiscalpolicyneedtobedeployedtocontaininflation.Itisimportantthatthefederalgovernmentreversethetrendofsubstantiallyhighergovernmentspendinganddeficitsthatbeganin2015andacceleratedafter2019.Althoughheadlineinflationhasretreatedfromitspeak,areturntoitstargetratewillrequirefiscalpolicytoreinforcemonetarypolicyrestraint.Askingmonetarypolicyalonetoreinininflationrisksanoutcomewhereinflationremainselevatedwhiletheeconomystagnates.Persistentinflationwouldkeepinterestrateshighand,togetherwithslowgrowth,wouldputcontinuedupwardpressureongovernmentdeficits.ebestwaytoavoidsuchanoutcomeisforCan-ada’sfiIntroductionInresponsetothelockdownoflargeswathesofCanada’seconomywhenCOVIDbegancirculatinginMarch2020,bothmonetaryandfiscalpolicyshiftedtounprecedentedstimulus.eBankofCanadaloweredinter-estratestonearzeroandexpandeditsbalancesheetoverfourfold,whilegovernmentsrandeficitsexceedingthoseincurredduringwartime.isextraordinarystimulus,alongwiththequickadaptationofbusinessesandindividualstosocialdistancingandtelework,helpedtheoveralleconomyrecoverrapidlyevenasindustriesprovidingclientfacingservicescontinuetostruggle.Disposableincomesrosesteadilyduringthepandemic,buoyedbymassivegovernmenttransfers,andinalittleoverayearbothrealGDPandemploymentrecoupedallthe13.0percentdropinGDPand15.7per-centlossofjobsrecordedattheworstpointoftheCOVIDcrisisin2020.However,maintainingstimulusasmuchoftheeconomyexpandedbeyonditspre-pandemiclevelshelpedfuelinflationbyboostingdemandbeyondsupply.Afterabriefperiodofpricedeclinesin2020,inflation,asmeasuredbytheall-itemsConsumerPriceIndex(CPI)begantopickupinthespringof2021,acceleratingtoa39-yearhighof8.1percentbyJuly2022.Inresponsetohigherinflation,theBankofCanadabeganwind-ingdownitspolicyofquantitativeeasingandthenraisedinterestratesin2022.Tightermonetarypolicywasaccompaniedbygovernments’reluc-tancetowithdrawfiscalstimulusfromtheeconomy.Afterhittingarecord$327.7billioninfiscalyear2020-21,thefederalgovernment’sdeficitremainedswollenat$90.2billionin2021-22anda$43billionin2022-23,(Canada,DepartmentofFinance,2023).esedeficitssignificantlyexceedthe$14.0billionfederaldeficitbeforethepandemicbegan(Can-ada,DepartmentofFinance,2022a).Infact,thedeficitin2021-22doesnotfullycapturetheextentoffiscalstimulusthatyear,ashouseholdsdrewontheirsavingsaccumulatedfromoverlygenerousgovernmentsupportprogramsin2020and2021tosustaintheirspendingasinflationsurged.Provincialgovernmentsalsohavestruggledtobalancetheirbudgetsastheyintroducedtaxcutsandsubsidiestocushionthestrainofinflationonhouseholdfinances.epersistenceofthefederalgovernment’sdeficits,/12ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationhowever,ismorenotablesinceitalonehasajointagreementwiththeBankofCanadatocontrolinflation,whichimplicitlycommitsthefederalgovernmenttoconductpolicyinamannerconsistentwithachievingtheinflationtarget.ispaperdrawsonagrowingliteraturethatfindshighergovern-mentspendinganddeficitshelpedfueltherecentsurgeofinflationand,therefore,thatbothmonetaryandfiscalpolicyneedtobedeployedtocon-taininflation.emainreasonthefederaldeficitremainselevatedevenasthepandemicrecedesisanearly30percentincreaseinnon-pandemicprogramspendingfromitslevelbeforethepandemic.Governmentsalsoarepayingmuchhigherinterestratesonthehugeamountofdebtissuedsince2020,aswellasdebtissuedbefore2020thatisnowrollingover.econtinuedinjectionoffiscalstimulusisstokingaggregatedemandandweakeningpublicconfidencethatinflationwillbebroughtundercontrol.Risinginflationexpectationsfuelwagedemands,riskingawage-pricespiralthatwillkeepinflationandinterestrateselevatedanddampeneco-nomicgrowth,puttingrenewedupwardpressureongovernmentdefiMonetarypolicyduringthepandemicMonetarypolicyhasshiftedfromunprecedentedstimulusinresponsetothepandemictoitstighteststancesinceatleast2007asinflationarypressureshavemountedquickly.Asthepandemicbegan,monetarypolicyinjectedunprecedentedstimulusintotheeconomyandfinancialmarkets.Centralbanksslashedshort-terminterestratestonearzerowhileexpand-ingtheirbalancesheetsmorethanduringthetwoworldwars(Piketty,2022:239).eBankofCanadatookawiderangeofactions,includingexpandingitsbalancesheetfrom$122.9billioninFebruary2020to$530.5billionayearlater,interveninginspecificfinancialmarkets(includingprovincialgovernmentandcorporatebonds),providinglendingguaran-tees,andensuringbankliquidity(BankofCanada,2023a).eBankofCanadathendelayedwithdrawingsomeofthisstimu-lus.WhiletheBankofEnglandbeganhikinginterestrateslatein2021,theBankofCanadadidnotraiseitsshort-termpolicyinterestratedespiteacknowledginginJanuary2022thattheeconomyhadreachedfullemploy-mentandthat“economicslackisnowabsorbed”—asignalthatBankpolicymakersshouldhaveexpectedanimminentupturnofinflation(BankofCanada,2022:5).Afterthisinitialdelay,theBankhikeditspolicyinterestratesharplyfrom0.25percentto4.50percentduring2022asitbecameclearthathigherpriceswerenotthetransitorysupply-drivenphe-nomenontheBankoriginallyassumed(seefigure1).Insodoing,theBankacknowledgedthatinflationwasalsoduetoanexcessofdemandoversup-ply(CanadianFederationofIndependentBusiness,2022:2).Amajorconcernofmonetarypolicytodayismakingsurethesurgeinpricesin2022isnotreflectedinhigherwages,triggeringawage-pricespiral.Monetarypolicysucceededinheadingoffawage-pricespiralinthepast—notablyin1990,whentheimplementationoftheGoodsandServicesTaxledtoaspikeintheCPI,butwageincreaseswerecontainedbecausetheBankofCanadasuccessfullymade“clearwellinadvancethatmonetarypolicywouldnotbefinancinganysecond-roundinflationspill-overs”(Crow,2002:193).eresultingdropofrealhouseholdincomesduringthisperiod,however,slowedeconomicgrowthtoacrawl,/34ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationFigure1:BankRateandCPIInflationinCanada,1962to20222520Bankrate15105TotalCPI01962196719721977198219871992199720022007201220172022-5Sources:BankofCanada(2023c)andStatisticsCanada(2023a).upwardpressureongovernmentdeficitsthatcontributedtoCanada’s1994fiscalcrisis.BankofCanadaGovernorTiffMacklemclearlyisconcernedaboutawage-pricespiral,andhasencouragedemployersopenlytorestrainthewagestheypayemployees.SpeakingtotheCanadianFederationofIndependentBusiness,Macklemsaid:“Soasabusiness,don’tplanonthecurrentrateofinflationstaying.Don’tbuildthatintolongertermcontracts.Don’tbuildthatintowagecontracts.Itisgoingtotakesometime,butyoucanbeconfidentthatinflationwillcomedown”(quotedinCanadianFederationofIndependentBusiness,2022:13).eoutlookforwagesin2023remainsproblematic:theBank’sownsurveyfoundthatemployersplana4.7percentincreaseinlabourcompensation,althoughthisis1percentlowerthanearlierexpectations(BankofCanada,2023b).).Aswell,thecontinuedhighlevelofjobvacanciesmeansslowereco-nomicgrowthmightnottranslateintohigherunemploymentasmuchasinthepast,FiscalpolicyduringthepandemicInresponsetothepandemic,governmentsinCanadaaggressivelyexpandedfiscalstimulus,runningdeficitsequaltonearly20percentofGDP.efederalgovernmentledtheway,providingemergencysupporttohouseholds,businesses,andotherlevelsofgovernment.esesup-portprograms,however,continuedlongaftertheemergencyphaseofthepandemichadpassed,whilenewspendingunrelatedtoCOVIDincreasedsharply.1In2022,monetarypolicyshifteditsfocustoreducinginflation,butfiscalpolicycontinuedtoinjectstimulusandthusboostoveralldemand.StimuluscomesfromongoingdeficitsaswellasthelaggedeffectofpastCOVID-relatedgovernmenttransferstoindividualsandbusinesses,lead-ingtoanextra$200–$300billionofhouseholdsavingsaccumulatingdur-ing2020,accordingtoBankofCanadaestimates(CanadianFederationofIndependentBusiness,2022:4).Figure2showshowsomeofthesesavingsshowedupinhouseholdcashanddepositsduringthepandemic.1esamepatternofmuchhighergovernmentspendingisevidentintheUnitedStates.Forexample,PresidentBidenunveiledhisUS$1.9trillionAmericanRescuePlaninMarch2021justweeksafterCongressapprovedanearlierUS$900billionpackageofCOVIDrelief(Timiraos,2022:363),andthenaddedafurtherUS$1.7trillionoverthenextdecadeinatrioofstimulusplansunveiledoverthecourseof2022.Federalstimulusamountedto15.0percentofUSGDPinfiscalyear2020-21,12.4percentin2021-22,and5.8percentin2022-23.UnrelentingdeficitspendingiswhyeEconomistmockinglyrelabelledtheBidenadministration’sInflationReductionActof2022asthe“InflationAccelerationAction”(eEconomist,2022e)./56ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationFigure2:HouseholdCurrencyandDeposits(billionsof$),2019to2022billionsof1990dollars1,0501,0301,0109909709509309108908708502019202020212022Sources:StatisticsCanada(2023a;2023b).Thesoaringoffederalspendingsince2019FederalspendinghasremainedatextraordinarilyhighlevelsevenasCOVIDreliefprogramswounddownin2022.efederaldeficitamount-edto$327.7billioninfiscalyear2020-21,$90.2billionin2021-22,and$43billionin2022-23,equivalentto13.2percent,3.5percentand1.5percentofGDP,respectively(Canada,DepartmentofFinance,2022a;2022b;2023).esedeficitsweredrivenbymorespending,whichoutweighedhigherrevenuescollectedfromtaxation.In2019-20,beforethepandemic,federalprogramspending(whichexcludesinterestpaymentsondebt),totalled$338.5billion,or14.6percentofGDP(Canada,DepartmentofFinance,2022a).InitsFall2022fiscalupdate,thegovernmentprojectedprogramspendingtobe28.9percentaboveits2019-20level,reaching$435.9billionin2022-23—equalto15.7percentofGDP(Canada,Depart-mentofFinance,2022b).OutsideoftheCOVIDcrisis,the15.7percentshareisthehighestgovernmentfootprintonGDPsincetheyearbeforetheChrétiengovernmentenactedfiscalausterityin1994,andwellabovethelowof12.3percentreachedundertheHarpergovernmentin2013-14(Canada,DepartmentofFinance,2022a).e1.1percentagepointincreaseintheshareoffederalgovernmentprogramspendingtoGDPisoneofthelargestonrecordbackto1970.AccordingtotheParliamentaryBudgetOfficer,$204.5billion,or35.5percent,oftheexpansionoffed-eralspendingsincethepandemicbeganwasunrelatedtoCOVID-relatedmeasures,evenbeforeadditionalspendingprogramswereannouncedintheFall2022UpdateorthepromisednewspendingonPharmacare(Can-ada,ParliamentaryBudgetOfficer,2022:4).Figure3showsthefederalbudgetarybalancefrom2014-15to2022-23.e3.4percentagepointincreaseinfederalspendingasashareofGDPduringtheseven-plusyearsoftheTrudeaugovernmentisthelargestexpansionofgovernmentoveracomparableperiodsincethemid-1970s,outsideoftheglobalfinancialcrisisin2008.Evenafteritbecameevi-dentthatinflationandinterestrateswererisingatarapidclipin2022,thefederalgovernmentcontinuedtoboostoutlays.InitsFall2022fiscalupdate,thegovernmentrevealedthatrevenueswere$38/78ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationFigure3:FederalBudgetaryBalance(billionsof$),2014to2022billionsofdollars250-25-50-75-100-125-150-175-200-225-250-275-300-325-350201420152016201720182019202020212022Sources:Canada,DepartmentofFinance(2022a;2022b).thanforecastinthespringbudgetandthatitplannedtospend$13billionofthiswindfall(Canada,DepartmentofFinance,2022b).Meanwhile,totalfederalgovernmentoutlaysincreasedevenfasterthanprogramspendingbecauseofrisinginterestcostsonthevastamountofadditionaldebtissuedsince2020.Publicdebtchargesdippedto$20.4billioninfiscalyear2020-21asrecordlowinterestratesmorethanoffsetthehugeexpansionoffederaldebtinresponsetothepandemic(Cross,2022:28).egovernmentnowforecastspublicdebtchargeswillmorethandoubleinjusttwoyearsfrom$20.4billionto$43.3billionin2023-24(Canada,DepartmentofFinance,2022b:55).eTrudeaugovernment’sprojectionthatinterestpaymentswillremainat$50.3billionby2027-28dependsontheoptimisticassumptionthatinflationwillbebroughtundercontrolbytheendof2024andtheinterestratehikesthatoccurredoverthecourseof2022willbereversed.Ottawa’sactualspendinglikelywillbehigherthanitprojects,giventhecurrentgovernment’strackrecordofovershootingplannedoutlays.Forexample,whenthepandemicbeganin2020,thegovernmentprojecteditsspendingforfiscalyear2022-23wouldbe$386billion.Ituppedthisfigureto$412billioninits2021budget,thento$434billioninthe2022budget,to$448billionsixmonthslaterinitsFall2022fiscalupdateandfinallyto$480.2Canada'sFiscalPolicyHasUnderminedEffortstoTackleInflationꢀ/ꢀ9ProfligatespendingishardlynewfortheTrudeaugovernment.FormerFinanceMinisterBillMorneaucomplainsthatTrudeau’srefusaltoagreetoafiscaltargetstartingin2015meantthatMorneauhad“toarguedowneveryinitiative”formorespendingfromhisCabinetcolleagues,creatingwhathecalleda“dysfunctionalprocess”(Morneau,2023:82–83).MorneaurevealsthattheattitudeofthePrimeMinister’sOffice(PMO)tospendingrequestswas“let’sgivesomethingtokeepthemhappy,”astancehesays“shatteredanypretenseoffiscalrestraint”(Morneau,2023:123).isadhocapproachtospendinghelpsexplainwhyactualspendingconsistentlyexceedsbudgetprojections.elaxattitudetospendinggrewduringtheCOVIDcrisis,whenthePMOunilaterallyraisedtheamountofsupportofferedbytheCanadaEmergencyRecoveryBenefitandtheCan-adaEmergencyWageSubsidyabovethemostgenerousproposalsfromtheDepartmentofFinance.ePMO’sfigures,accordingtoMorneau,were“chosenwithnoregardforourdetailedcalculationsandjustifications,[and]meantwewouldbedistributingbillionsofdollarsmorethanwasactuallyneededunderthecircumstances”(Morneau,2023:240).Somespending,suchasincreasedbenefitsforseniors,werefor“problemsthatdidn’texist”(p.241).Provincialgovernmentsarealsopartofthestoryofgovernment’sexpandingeconomicfootprint.eyhavebeenslowertowithdrawCOVID-relatedfiscalstimulusthanhasthefederalgovernment.Alto-gether,provincialnetborrowingtotalled$36.4billionin2020,$34.1bil-2lionin2021,and$32.4billionin2022.Someoftheincreaseinprovincialspendingwasonhealthcareduetothepandemic.Muchofthe2022defi-cits,however,alsoreflectstimuluschequessenttohouseholdsinOntarioandQuebecjustbeforeelectionsinthoseprovinces,supposedlytohelphouseholdscontendwithhigherlivingcostsstemmingfromescalatinginflation,alongwithrebatesforspendingontravel-relatedservices.Totalprovincialandfederaldeficitsrepresented19.7percentofGDPin2020,35.4percentin2021,and2.4percentin2022.Governmentleadersinvokedlowinterestratestorationalizetheirspendingsplurgeduringthepandemic.efederalgovernmentarguedthat,“[i]ntoday’slowinterestrateenvironment,notonlycanweafford2eprovincialgovernmentdataareonaNationalAccountsbasis,whichismorecomparableacrossprovincesandtimelierthandatafromtheprovincesthemselves.Assuch,thedataarenotstrictlycomparablewiththePublicAccountsdatacitedforthefederalgovernment.elatterareusedbecausetheyarethebasisforthefederalgovernment’sforecastscitedinthispaper.3esedataforthefederalandprovincialgovernmentsaremorecomparabletotheUSdeficitbecauseCanadadecentralizesmoreofitsgovernmentandalmostallUSstatesarenotallowedtorunbudgetdefi10ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationtheseinvestmentsinCanada’sfuture,itwouldbeshort-sightedofusnottomakethem”(Canada,DepartmentofFinance2021:24).isechoedUSTreasurySecretaryJanetYellen’sjustificationofaraftofnewprogramsandhundredsofbillionsofdollarsofextraspendingbysaying,“Rightnow,withinterestratesathistoriclows,thesmartestthingwecandoisactbig”4(Timiraos,2022:276).Althoughlowinterestrateswereusedtojustifyhighergovernmentspending,theirsuddenendin2022hasnotcurbedgovernments’enthusi-asmforspending.Federalandprovincialdebtcontinuestogrowasgov-ernmentsintroducetransfersandsubsidiestoinsulatehouseholdsfrominflationandexpandsocialprograms.Moreover,fiscalstimulusintro-ducedbefore2022isstillbeingfeltbytheeconomy,helpingtoboostinfla-tionwellabovetheforecastsofmosteconomistsandcentralbanksatthestartof2022.eperiodwhenagovernmentdeficitisrecordeddoesnotalwayscorrespondtowhenstimulusisinjectedintotheeconomy.MuchofthemoneygovernmentstransferredtohouseholdsattheonsetofCOVIDin2020wassaved—as“pre-loadedstimulus,”inFinanceMinisterChrystiaFreeland’sownwords—andwasthenspentin2022asinflationsqueezedhouseholdpurchasingpowerandnormaleconomicactivitiesresumed.iswasreflectedinadropinthehouseholdsavingratefrom26.5percentinthesecondquarterof2020to5.7percentinthethirdquarterof2022.4Yellen’scommentcontradictedherownconclusionin2001thatcontainingthebudgetdeficitintheearly1990spaidofffortheUnitedStatesbecauseit“helddowninterestratesandmadespacefortheprivate-sectorinvestmentboom.”Furthermore,whenaskedin2003whatcouldgowronginthenextdecadeortwo,Yellenwarnedthat“largebudgetdeficits…werelikelytoreturn”(Hilsenrath,2022,161–63).Inflation’ssurprisetogovernmentsandmanyeconomistsesurgeofinflationcaughtgovernmentsandcentralbanksbysurprise.e2021federalbudgetforecastCPIinflationof2.2percentin2021and2.0percentin2022,whiletheactualoutcomewas2.6percentin2021andisontrackfor6.8percentin2022.e2022budgetforecastofCPIinflationwasstillthreepercentagepointsbelowitslikelyoutcome.eseforecastingerrorsreflecthowthegovernmentunderestimatedtheimpactofstimulusondemandandthepersistenceofdistortionstosupplychainsfromthepandemic—ChenandTombe(2022)concludethatsupplyshocksaccountedforthelargestpartofhigherinflationinCanada.Furthermore,asnotedearlier,governmentscouldnotpredictexactlywhenstimuluswouldbereleasedintotheeconomybecausemultiplespendingprogramswereenactedquicklyandsomuchofthemoneytransferredtohouseholdswassaved.efailureofmosteconomiststoforecasthigherinflationcannotbeblamedsolelyonunexpectedsupplyshocks.Severalleadingecono-mistswarnedoftheinflationarypotentialofexcessstimulus.eyincludeformerUSTreasurySecretaryLarrySummers,whoopenlyworriedthat“we’retakingverysubstantialrisksontheinflationside…Weareprint-ingmoney,wearecreatinggovernmentbonds,weareborrowingonunprecedentedscales”(Forbesetal.,2022).FormerBankofEnglandGov-ernorMervynKingwasbluntinsayingthat,during2020,“centralbanksdecideditwasagoodtimetoprintalotofmoney.atwasamistake.atledtoinflation.Wehadtoomuchmoneychasingtoofewgoods.Andtheresultwasinflation.atwaspredictable.Itwaspredicted,andithappened”(quotedinYakabuski,2022).OnesuchpredictioncamefromeconomistsatJohnsHopkinsUniversity,whoforecastUSinflationofbetween6and9percentbasedonthesurgeinthemoneysupply;USinfla-tionreached9.1percentinmid-2022(HankeandHanlon,2022).Canadianbankexecutivesalsowarnedaboutthebuild-upofinflationarypressures:RBC’schiefexecutiveofficersignalledin2021that“thereispersistentinflationbuilding”asCanadiansbeganspendingthesavingsaccumulatedearlyinthepandemic(Bradshaw,2021)./1112ꢀ/ꢀCanada'sFiscalPolicyHasUnderminedEffortstoTackleInflationEveniftheinitialimpulseforhigherinflationin2021originatedinsupplyshocks,thisdoesnoterasetheeconomists’andpolicymakers