Barry Eichengreen is an economist who examines history.
I wrote an article about that recently that was included in a publication by the Centre for Economic Policy Research. I also gave a few speeches on the topic, near the end of last year. It was about the lessons learned from the recent inflationary period. A whole chapter is devoted to that. It would be too long to describe, but there are a few important lessons.
One of those lessons was noted by the senior deputy governor: When there is excess demand in the economy, supply shocks have a greater impact. We have had supply shocks in the past 20 years, but in most cases the effects were “temporary”. I want to stress the word “temporary”. When we saw that that the shocks continued, we thought initially that they were temporary. But since there was excess demand in the economy, we saw that those shocks were having a much greater impact on inflation than in the past. That is one of the lessons we learned.
I think there is another lesson that is probably even more important. It is not really anything new, but something new that many Canadians had to experience, unfortunately. There had not been major inflation for many years, since the 1970s and 1980s. For many Canadians, it was truly the first time they had experienced inflation. So it is not a new lesson, but we observed once again that Canadians do not like inflation. It creates a lot of divisions and makes it look like the system isn't working. Canadians work hard, but their wages are not going as far as they used to.